Major Update to Investing in Housing
Just 3 months ago the housing market had everything going for it with major tailwinds. Now the path is full of roadblocks.
Three pieces of housing affordability are mortgage rates, home prices and income.
With cheap rates and higher incomes people were able to afford buying more house than they needed. With more demand than supply housing stocks do very well.
Mortgage rates have quickly gone from the lowest ever to a decade high at 4.9%. Anyone taking out a new mortgage will see payments increase of 50% compared to if they could lock in the 3.2% rate of last year.
Low rates were part of the reason for housing prices to rise rapidly year after year (they are up 85% from 2012). But the high prices combined with higher interest rates is likely to cool demand especially since income has not been growing as fast as the interest rate spike or the housing market.
Just 3 months ago the best of the best homebuilders such as Lennar (LEN) were great long term holds and even better for trading for income (selling puts and calls). This is no longer the case with the share price falling rapidly as investors understand the huge change in the housing market and anticipating poor earnings results in the future.
I would not hold any homebuilding stock at this time. You could always buy back in after the dust settles and we see how home buyers are reacting to the new reality.
Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.
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