MoneyLife

How record housing prices influence the market

By Lavall Chichester

One of the beneficiaries of the lockdowns and social distancing measures of the past year has no doubt been the housing market. Many people flocked to the suburbs, moved to warmer climates, and traded up their homes for larger spaces during the early stages of the pandemic. As a result, home prices have continued to reach new all-time highs that have eclipsed the mid-2000’s housing boom. As the economy and world return to pre-pandemic levels, how does this affect everyday investors?

Three things these prices tell us

Housing is a basic human need and has a profound impact on our everyday lives. From an investment and economic perspective, the housing market is both itself an investable asset class as well as a macroeconomic indicator of financial health. Recent data paint three important pictures from these perspectives.

  1. Home prices are a barometer of consumer confidence. The housing market can tell us about the economic health of consumers since homes are the largest asset for many households and mortgage payments are usually the largest expense. Rising housing prices have likely contributed to consumer and investor confidence — both of which have jumped in recent weeks. Combined with higher savings rates, the average consumer is likely to be a strong position.

On the other hand, fast-rising home prices make it more challenging for new homebuyers. Fortunately, interest rates are still low by historical standards even after climbing in the first quarter. The average 30-year fixed mortgage rate is still around 3%, well below the 4% average since 2008 and 6% longer-run average. So, while low rates have contributed to higher home prices, they also help to offset them and increase affordability.

Chart: Housing prices, represented by the S&P CoreLogic Case-Shiller 20-city index below, have risen to new all-time highs
Chart  Description automatically generated

Sources: Clearnomics, Standard & Poor’s

  1. The housing market itself continues to face high demand and significant supply constraints, even with COVID-19 restrictions subsiding. The supply of homes available for sale, measured in terms of the number of months needed to sell, is near historic lows of 3.6 months. As a result, both building permits and housing starts have zoomed past historic averages, especially for single family homes.


Rising housing demand also puts pressure on other parts of the market. Lumber prices, for instance, are at historic records, rising more than 5x from the April 2020 low. Other materials including granite, bricks, concrete blocks, paint, and more have all increased.

  1. Rising home prices have contributed to the real estate sector of the stock market gaining 16% this year after declining in 2020. While only a portion of this index is related to residential real estate, the re-opening of the economy has pushed many parts of the sector higher. Continued supply/demand pressures, low interest rates, the economic recovery, and other factors could continue to move in the favor of some of these industries.

So what’s the takeaway for investors?

The housing market has been a positive sign for the macroeconomy, individual homeowners, and the broader stock market. As always, this is a key reason investors should stay diversified and consider a wide variety of sectors and asset classes. Staying diversified is also important because the stock market can be volatile.

MoneyLion offers professionally managed, diversified portfolios to help you invest for the long-term, through any kind of economic condition and balance the need to manage risk with the need to maximize potential gains. It’s our way of helping you reach your financial goals.

[disclosures]

Investment advisory services provided by ML Wealth LLC. Investment Accounts Are Not FDIC Insured • No Bank Guarantee • Investments May Lose Value. For important information and disclaimers relating to the MoneyLion Investment Account, see Investment Account FAQs and FORM ADV. Accounts are subject to administrative fee of $1 per month.

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