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Morning Brief: The U.S. housing market faces a fascinating decade ahead

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In Friday’s Morning Brief, Myles Udland breaks down how recent economic data coupled with low supply and high prices shows that the U.S. housing market is in for a fascinating decade.

Video Transcript

[MUSIC PLAYING]

JULIE HYMAN: Well, we got existing home sales data just about 30 minutes ago showed a December rise of 7/10 of 1%. That's an unexpected rise, by the way, to an annual pace of 6.76 million and caps off the best year for that metric, going back to 2006. Now Myles, in your morning brief, you wrote about the housing market and the supply constraints that we continue to see and probably will continue to see in the market.

MYLES UDLAND: Yeah, I mean, you know, we don't have a brief for Saturday morning, but I could just republish everything I wrote yesterday and add these numbers. Because both the existing home sales and then the housing starts data that we had yesterday that we jumped off of are the best since 2006. And clearly, the housing market right now is in its strongest place it's been since it was in a bubble.

Now, a lot of the dynamics are different. Brian Sozzi asked a guest on our program about this yesterday, are they worried about bubble dynamics? And because of what the rates market is doing and because of how hard it is to obtain a mortgage, something, Julie, you and I both know quite well at this point, that there really isn't a risk of that kind of repeat. What's happening right now, and I wrote about this five years ago as the next housing crisis, is the lack of supply.

Right now, there are about 2.3 months, I think the latest data was, on how much housing supply is on the market at the current sales pace. Homes are sitting on the market for three weeks on average. Obviously, in hot markets-- you know, you go to Austin, you go to Denver-- you're going to be multiple bids in one day if the home is in the right area and the price at the right level.

And so, it's such a strange time for the housing market. And I think that's really going to be the dominating word here over the next decade, is strange. There's so much demand. There's so little supply. Homebuilders have been clear, the homebuilding companies that they're not really rushing to go build-- to go ramp up their production. And I'm not even sure if they could. Lumber prices, competition for labor, the availability of land, all these things are quite competitive and quite expensive right now. And so, I just don't see the supply challenge really being alleviated.

And we haven't even mentioned-- and I didn't mention this in the brief this morning-- how many big private equity players came in after the housing crisis bought up single family homes and now rent them. That took a huge chunk of supply off the market. And so, you have this massive demand surge as a result of COVID, as a result of millennials aging. And you have boomers staying in their homes longer. You have homebuilding companies that don't want-- that got burned 15 years ago-- don't want to repeat that. And you have rates that keep prices elevated and keep them moving up and to the right because the month-to-month affordability is still reasonable.

But boy, it is just going to be a strange time I think for the market overall over the next decade. Probably good if you own a home builder, if you are a realtor, if you are a general contractor. All these dynamics are good because there's more demand than you can supply. But I think that will just kind of create a weird, strange challenge, again, I think is the best word that I can come up with, especially for younger folks who are thinking about-- kind of coming into their prime earning years, prime family formation years, and so on.

BRIAN SOZZI: Myles, I really enjoyed your housing writings and especially recently, because it's really reminded me on other companies that could be benefiting or piggybacking off of this momentum in the housing market. And I wrote some of these stocks down this morning, Williams Sonoma, Ethan Allen, Home Depot, Lowe's, Owens Corning. Whirlpool is trading nearly at a five-year high.

Mohawk, they make carpets. Stanley Black and Decker makes power tools. ADT, ScottsMiracle-Gro. Really, there's a ton of stocks if investors want to play this space. It's not just the homebuilders here. There's a lot of derivative trades. And these companies will be reporting earnings over the next two weeks. And I won't be surprised if a lot of them come out with really strong results.

[INTERPOSING VOICES]

JULIE HYMAN: Sorry.

MYLES UDLAND: No, sorry, Julie. I was just saying, one other stock that I didn't even know the company was public, but I know of the company, that's Trex. They make that fake wood decking. That stock's up, like, a billion, bajillion percent, like all the other homebuilders, another great derivative fly. Sorry, Julie.

JULIE HYMAN: Yeah, and PS, we've spoken to that CEO a number of times. That also brings together the housing thing with your other favorite topic, ESG, because a lot of that Trex decking is made in part from recycled plastic bags, believe it or not. They use the wood plastic composite in making that decking. Another one I was going to mention from this morning is Floor & Decor, which is something that Jared Blikre brought up, Masco another one. So, to your point, there are a lot of these guys to talk about.