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March 2021

Risk fund manager explains why US housing "is smashing every record in the books"

March 4, 2021



Stephen McBride

Calling it one of the greatest comebacks in American history, professional fund manager Stephen McBride contrasted the current booming housing market with the downturn from 2006 to 2009. The crisis was devastating to millionaires and millennials alike who could not get mortgages.

The housing bust of 2006-2009 "shattered a whole generation of Americans who were starting to 'grow up'" McBride remarked in a column in Forbes. Millennials were forced to backburner any dreams of homeownership.

This cohort, which numbers more than 72 million people, was "famously absent" for a decade, but now, according to the National Association of Realtors®, they account for the largest share of homebuyers.

Referring to a chart based on U.S. Census Bureau data of homeowner rates for Americans under age 35, McBride, the editor of the RiskHedge Report ("a disruption research firm") described it as the most important chart in housing right now."

The chart shows the number of under-35 homeowners peaked in 2005, then spiraled downward to record lows during the decade that followed before reversing course in 2019 "when a wave of young homebuyers burst into the market."

DR Horton Inc, the country's largest homebuilder by volume, told investors over 40% of its buyers are under age 34. Bloomberg called them a dominant force in high-end real estate.

Not only are millennials buying their first home, but some industry-watchers say they're skipping the starter home. A Sotheby's report on global luxury in 2021 said "remote work has allowed millennials to ascend the housing ladder in smaller, more affordable cities. It's not uncommon for their first purchase to be a multimillion-dollar luxury home." The report also noted millennials have "unique consumer preferences that will profoundly influence the direction of the luxury-housing market."

In his Forbes column, McBride stated "what's really interesting is only the first wave of young homebuyers has burst into the market so far." He cited Pew Research data that shows the average age of a first-time homebuyer is 31, and that last year, the average millennial turned 31, "which means we're just kicking off this massive trend."

McBride believes the current housing boom has years left to run, but it is hampered by inventory shortages. The 2008 housing crisis not only dissuaded Americans from investing in housing, but it also shattered the confidence of homebuilders, he emphasized. "Builders have been sitting on their hands for the past 12 years. And it's created a serious housing shortage in America today," he wrote.

NAR statistics indicate there are currently only about 1 million homes for sale nationwide - the lowest number since the association started tracking that metric in 1982. That means there is less than a two-month supply.

In an interview with CNBC, Glenn Kelman, the CEO of Redfin, said he had never seen such low inventory, adding, "In Austin people are bringing lawn chairs to open houses because the wait is so long. In Salt Lake City, wait lists are 90 people deep."

The pent-up demand bodes well for housing - and housing investments, according to McBride who says he is "pounding the table" on homebuilder stocks. Builders are ramping up to produce more homes, evidenced in part by the number of new home starts that reached their highest level in January since 2006. Even so, McBride, who describes himself as a professional investor, notes, starts are still lower than levels during 1959, while population has doubled over the past 60 years.

McBride said he expects the homeownership rates for young folks will surge to new heights over the coming decade, fueling the largest housing boom ever. "In short," he stated, "homebuilders have to build tens of millions of new homes over the coming decade."