How Millennials Saved the Housing Market…

Millennials are finally growing up.

I’m sure you’ve heard the stories by now. Millennials are stunted, the experts warn. They’re up to their eyeballs in student loan debt. They’re having trouble finding good-paying jobs. Heck, most of them are living in their parent’s basements or crappy apartments.

But here’s the thing: many of these generalizations aren’t true at all. In fact, millennials have grown up just fine. Over the past couple of years, these kids have found good jobs, married, and had children. Some have even bought homes.

In fact, if you’re in the real estate business or selling a home, you should thank the younger generation for helping spur demand in your area.

If we turn to the data, we can clearly see how the plight of the millennial homebuyer isn’t any different from the rest of us.

Millennials’ low homeownership rates have encouraged all sorts of gloomy talk about the fate of U.S. real estate. But no age group had enjoyed a boost in homeownership coming out of the recent slump, according to a recent Fannie Mae study. Blaming stunted millennials for a soft real estate market was a mistake since every other demographic was in the same boat.

Until now…

“Older” millennials in their 30s are now one of the new driving forces in homeownership trends. This demographic is partly responsible for finally pushing the homebuilder sector higher a full decade removed from the housing crisis.

This huge shift is just beginning to show up in the data.

Back in September, we saw the largest single-month increase in new home sales since 1992.

New single-family home sales increased a whopping 19%, placing new home sales at their highest level since October 2007.

It’s not difficult to figure out what’s going on here. Homebuilders need to ramp up production to meet consumer demand after sitting on their hands for the better part of the last decade. Supply is tight. As millennials continue to grow up and jump into the housing market, homebuilders are going to need to catch up.

Of course, we don’t even need to pick apart this bucket of data if we just look at a chart of the homebuilders.

The strong uptrend in the iShares U.S. Home Construction ETF (NYSE:ITB) has accelerated over the past four months. It’s now up 65% over the past year. Compare this performance to Nasdaq Composite, which is currently the strongest of the major averages. It’s up about 30% since the start of 2017. That’s right — the forgotten homebuilders are even doubling-up the red-hot tech trade.

Once again, it’s the same old story. The news tells one story. Price tells another.

This is one of the many reasons we’ve remained bullish on the industry as it’s come back from the dead over the past two years.

Of course, we remain bullish on the homebuilders as the market stampedes to fresh highs this month. We’re going to hang onto our longer-term ITB position (it’s been very good to us since we hopped onboard in early 2017). Look for this group to extend its gains in the weeks and months ahead.

Sincerely,

Greg Guenthner
for The Daily Reckoning