Hot U.S. Housing Market Could Be Getting Frothy

U.S. Housing Market Could Burn; Caution Required for Investors

The U.S. housing market has been really hot lately, and with this happening, investors have been buying home builder stocks.

I can’t stress this enough: don’t get complacent. The housing market may not remain hot for too long, and home builder stocks may not be the best investments anymore. If you’ve made money from home builder stocks, great. But be very careful going forward. Your investment portfolio could get hurt.

Aerial View of Buildigns

Image Source: Pexels

Let’s dig into the details a little bit.

These days, no matter where you look, there’s one argument being thrown around left, right, and center that goes something like this: the U.S. housing market is going up because of low interest rates.

Yes, low interest rates have definitely contributed to soaring home prices. Mortgage rates have dropped and buyers have rushed to buy homes.

Look at the following chart. It plots the S&P/Case-Shiller U.S. National Home Price Index. It’s one of the most commonly tracked home price measures.

(Click on image to enlarge)

(Source: “S&P/Case-Shiller U.S. National Home Price Index,” Federal Reserve Bank of St. Louis, last accessed June 9, 2021.)

Over the past few months, we’ve really seen an acceleration in home prices. In March, home prices in the U.S. economy surged by 13.2%.

We’ve also seen new home sales surge. Look at the following chart. Since April 2020, there’s been a huge uptick in sales. In January 2021, the annual pace of new home sales jumped by close to one million units.

(Click on image to enlarge)

(Source: “New One Family Houses Sold: United States,” Federal Reserve Bank of St. Louis, last accessed June 9, 2021.)

As all this has happened, look at the performance of home builder stocks, tracked by the SPDR S&P Homebuilders ETF (NYSE:XHB). In the last year, home builder stocks have surged by more than 62%.

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Disclaimer: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and ...

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