When it comes to housing, what a difference 14 years makes. That's right, Thursday morning we learned that single-family home sales are the highest they have been since September 2006 and the news is decidedly good for the economy and the United States.
Yet, 14 years ago that number spelled disaster, because the boom in housing was at the root of the Great Recession as thousands of individuals borrowed money, using no doc loans, or home equity loans, against the property to flip them to the next guy. As the Fed raised rates again and again to stop the process, it ended with a huge number of unsold homes and the collapse of the mortgage market and the trillions of dollars caught up in it.
The banking system was almost brought down by this overbuild and the betting on it continuing and we really still haven't recovered, mentally, from that crash.
Amazingly, when we were last at the 1.67 million home number that was announced Thursday, we had 298 million Americans. Now we are at 330 million. No wonder there is only a 2.3-month supply of available homes. No wonder housing prices are rising. No wonder mortgage rates could be on the cusp of a big move up.
When I read these figures on Thursday, I immediately heard a slew of commentary about how dangerous this figure is and what a debacle it has to trigger, whether it be people taking down too much debt or housing being inflated in value to the point where it can create a new inflation cycle to the end of low rates because the Fed's job is done.
I want to tell you that I have never felt more confident that this figure, the one we topped 2006 with, is actually terrific news, because, as we always say around here, housing punches above its weight. That's important, because housing represents only 10% of the economy, but the ripple effects are extraordinary.
Before I go into why I am excited and not scared of this number, as I was back in 2006, when I was worried sick about the overbuild, let me say that everything that I am about to tell you has to do with the bridge to when the population in this country has immunity. Right now we are inoculating about one million people a day and that's being regarded as landmark positive. We need, however, to do 2.5 million a day to get somewhere. Plus, as the brilliant physician scientist, Dr. Eric Topol, tells us, we need the defense production act to make N-95 masks so everyone has one -- the best you can get -- and we need everyday home tests that tell you if have Covid, home tests like the ones I have from Carestart that have Emergency Use Authorization from the Food and Drug Administration. I intend to make this my next cause, because unless we find out we have Covid in the 48 hours that we are infected but we don't know it, we can't slow this thing down to where we can successfully re-open the economy.
Now, this leaves us with what? We are a service economy. Two-thirds of our economy is service-oriented, and it is heavily involved with travel, leisure, entertainment, sports, dinning out and carousing, exactly the kinds of things that just won't work until we do all of this inoculation. I am thrilled that we have a new federal policy on everything from masks to shots, but we have been so hobbled by a lack of federal response that it's going to be difficult to get things rolling.If we wanted to get serious vs B.1.1.7
— Eric Topol (@EricTopol) January 5, 2021
—get N95/K95 masks to all and enforce their use
—get rapid home testing big supply to each household for daily use
—amp up digital, mobility, genomic and wastewater surveillance 100X
—vaccinate 24/7 like it's an emergency. Because it is.
But then there is the one bright spot, housing, and the killjoys who instantly talked about how bad or dangerous this number was simply haven't studied, history, economics, or profits.
Booming housing is good. No, it is great, and let me tell you why and contrast this with the 2006 lead up to the Great Recession.
First, unlike 2006, the consumer is about as solvent as she has ever been. We used to lament how ugly the balance sheets of most Americans are. Now they are the opposite. They are brimming with cash. Yet, at the same time, because of the standards that were set after the Great Crash, it is still very difficult to get a loan. Sure you can use DocuSign (DOCU) to get the job done quickly, but unless you have the cash -- a large down payment -- you can forget about it. No more do docs. No more home equity loan deposits. Oh, sure, there are some outliers, there always are, but we are perilously close to having no loan demand, because it is too risky, and I would argue that buying home has become a necessity for people simply as a place to live, given that they can't stay with their parents anymore now that there are grandchildren or they are fleeing the cities in droves because of Covid fears.
Yet, the price of housing is anything but insane, despite the scarcity. Last week KB Homes (KBH) reported and gave you a price breakdown: $344,000 in the southwest; $312,000 in the central U.S.; $283,000 in the southeast; and $640,000 on the West Coast. Sure, the latter is very high, but in many areas -- notably San Francisco -- it is coming down pretty rapidly.
That's not inflation. That's pretty much status quo.
Second, if homes weren't being bought, I don't know what else would be, given the severe constraints of the illness. Fortunately for the U.S. economy, there are two new forces at work that are spurring spending, work and school at home.
We are now going into a hybrid mode for work. It's become optional whether you go into work or not. But not working is anything but optional. I don't know if you see it, but those who sign onto a hybrid model are working far more hours, especially if they are easterners working for western companies.
That means you need to make rooms into offices. Now, it is true that the newer homes often advertise that they have figured out the hybrid model. But the older homes are a Home Depot (HD) or Lowe's (LOW) dream come true. Hence, those stocks went up almost as much as the homebuilders'. It's incredible to me, but at one time we would have seen these projects funded by home equity loans. Now it is by cash. Not even credit card. Just cash. That's not inflationary. It gives the painter some work, hence the run in Sherwin-Williams (SHW) and and PPG (PPG) . Same thing with decking, hence the all-time high for Trex (TREX) and near high for Azek (AZEK) . We had Azek on "Mad Money" recently and the company is furiously adding to its work force to meet demand.
Then there are the retailers that help decorate and furnish and the device companies and the video game consoles and the Hewlett Packard (HPE) , Dell (DELL) and Apple (AAPL) computers. They all come with this fantastic number this morning.
Finally, you need a car if you own a home. That's why CarMax (KMX) is the third best performer this year, and GM's (GM) the first. Sure there's electric vehicle positives with GM, but I sense a car boom coming. Same for Ford (F) . Cars put a huge number of people to work. They are going to keep unemployment as low as possible, until we vaccinate 2.5 million people a day.
Now, there will come a day when we go back to being a country based on spending for fun and not for utility. But we aren't there yet. Consider the housing a bridge, and unlike that modern day war classic, this is not a bridge too far.
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