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EXACTLY How High Home Prices Should GoBy
Monday, March 25, 2013
"This market is going crazy," a realtor friend just told me...
"Just this week, I got a beach condo under contract... and I got four more offers within 36 hours."
For years, I have urged you to BUY housing in Florida. I've told you housing here is attractively priced. And it will rise in price faster than just about anyone expects over the next decade.
Now, it's happening. Have you missed it? Absolutely not. Home prices in Florida – and in the nation – can and should go much higher from here...
Last week, I told you...
U.S. homebuilders told us the same thing in their recent earnings calls. Lennar (NYSE: LEN) and Toll Brothers (NYSE: TOL) both reported blow-out earnings last Wednesday. The stocks jumped 4.8% and 5.9%, respectively, on the news. The market is hot. The major homebuilders show a turning trend in housing. And the anecdotal evidence from locals backs it up.
How high can home prices in Florida – and in the U.S. – go? Here's one simple measure we use to find out...
It is housing's "fair value," based on housing "affordability." Housing affordability is a simple concept based on one question...
Can the median American household afford the mortgage payments on the median house in America?
To answer that, we just need three numbers...
These three numbers allow us to calculate our "fair value" for home prices. As you can see in the chart below, fair value today is $265,000. Because of the worst crash in home prices in decades and the lowest mortgage rates in all of history, home prices are still more undervalued today than at any time in our investing lifetimes...
Exactly how much could home prices rise in America? Based on the numbers, our answer is: $85,000.
The median existing home price in America today is $180,000. Meanwhile, our "fair value" for U.S. home prices based on our simple "affordability" median is $265,000.
There's plenty of room for prices to run.
The market has heated up. At the same time, real estate prices are different than stock prices – they move in terms of years, not minutes.
You have serious upside potential here. By our math, the exact upside potential in the median home in America is $85,000. Of course, like any good boom, home prices could dramatically overshoot that number.
To me, this makes housing still the best deal in America right now...
Good investing,
Steve
Further Reading:
Right now, "U.S. housing is the greatest value it's ever been in our lifetimes... and probably the greatest value it will ever be," Steve says. The uptrend is here... And now is the lowest-risk time to buy. Get the details here: Housing Is About to Soar... Don't Wait a Moment Longer.
Steve says Florida is one of the best places to get your money's worth in real estate right now. He's personally invested in the sector below market value. But investors are flooding into the area, and opportunities are disappearing fast. Learn more here: GET ON IT! You've Almost Missed It in Florida Real Estate.
Market NotesNEW HIGHS OF NOTE LAST WEEK
Two Harbors (TWO)... "virtual bank"
Bank of America (BAC)... bank
Travelers (TRV)... insurance
W.R. Berkley (WRB)... insurance
American Financial Group (AFG)... insurance
U.S. Home Construction Fund (ITB)... homebuilders
D.R. Horton (DHI)... homebuilder
Sherwin-Williams (SHW)... paint
Discover Financial Services (DFS)... credit cards
Verizon Communications (VZ)... cell phones
JetBlue Airways (JBLU)... airline
Southwest Airlines (LUV)... airline
Delta Air Lines (DAL)... airline
US Airways (LCC)... airline
Constellation Brands (STZ)... booze
Hershey (HSY)... chocolate
Kraft Foods (KRFT)... Big Food
ConAgra Foods (CAG)... Big Food
Sysco (SYY)... Big Food
General Mills (GIS)... Big Food
Kellogg (K)... Big Food
Target (TGT)... retailer
Procter & Gamble (PG)... household goods
Becton-Dickinson (BDX)... medical products
CVS Caremark (CVS)... drug stores
Walgreens (WAG)... drug stores
Rite Aid (RAD)... drug stores
Bristol-Myers Squibb (BMY)... Big Pharma
Johnson & Johnson (JNJ)... Big Pharma
Pfizer (PFE)... Big Pharma
Amgen (AMGN)... biotech
Chevron (CVX)... oil giant
Range Resources (RRC)... natural gas producer
Chicago Bridge & Iron (CBI)... natural gas infrastructure
Calpine (CPN)... natural gas power plants
NEW LOWS OF NOTE LAST WEEK
Baidu (BIDU)... China's Google
Weight Watchers International (WTW)... weight-loss company
Cliffs Natural Resources (CLF)... iron ore
National Bank of Greece (NBG)... Greek crisis
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