Housing unaffordability is a tailwind for multi-family … ways to invest … the three corners of the market where Luke Lango is investing … Eric Fry’s “bad” risks to avoid The housing market has been frozen the last several years and it isn’t getting better – so, keep your eye on top-tier multi-family apartment builders. Stepping back, here’s a quick retrospective on housing in 2024 as we begin the new year… 
According to analyst Charlie Bilello, the median household income necessary to purchase the median house in the U.S. now clocks in at $118k. This is more than 49% higher than the current median household income, which is $79k. As Bilello writes, “The most unaffordable housing market in history continues.” Now, even though the Fed has cut interest rates 100 basis points since last fall, the 30-year fixed mortgage rate has been climbing, adding to the housing unaffordability pain train. Here’s Bloomberg from last week: US mortgage rates climbed closer to 7%, threatening to squeeze buyers trying to crack into the housing market. The average on a 30-year mortgage rose to 6.91% as of Jan. 2, up from 6.85% a week earlier, according to Freddie Mac data released Thursday. A measure from the Mortgage Bankers Association advanced 8 basis points to 6.97% in the period ended Dec. 27, a nearly six-month high. High borrowing costs are weighing on affordability. They’ve also pressured demand recently, with the MBA’s index of home-purchase applications sliding nearly 7% to the lowest level since mid-November. As usual, there is a bull market on the other side of this trend, and wise investors are moving their money accordingly. | Recommended Link | | | | A website that shows you the biggest potential jumps on 5,000 stocks – to the day – weeks before they occur. In 2024 alone, it would’ve pointed to gains of 250% in 38 days on (TTWO)… 101% in 10 days on (WSM)… 353% in 48 days on (AON) and more in studies, with 83% backtested accuracy. Until January 8, you can claim free access here. |  | | The housing market has driven Americans into the rental market, which has finally sopped up a glut of apartment inventory Over the past two years, we saw the biggest apartment construction boom in four decades. The glut of empty units put downward pressure on rental rates. But as the “the most unaffordable housing market in history continues,” would-be homeowners are being driven into apartments, which is changing the supply/demand balance. Here’s The Wall Street Journal from November: The vacancy rate, or the share of apartment units that are empty, stopped rising for the first time in three years last quarter, as demand for apartments rose to its highest levels since 2021, according to CoStar. The more than 1.2 million new apartment units that were built during the past two years are filling up. If that demand is sustained, if the economy remains strong and if housing prices remain near record highs, landlords likely will have more pricing power starting sometime [in 2025]. That could allow building owners to raise rents more than they have recently… Now, this has important inflation implications since housing is a significant portion of CPI and PCE readings. But let’s save that for a different Digest. For today, let’s look at the investment angle, which points us toward top-tier multi-family landlords. If 2025 is going to bring favorable rental-rate conditions for apartment owners, it’s time to look at some of the strongest multi-family operators You can begin your research with Equity Residential (EQR). It’s the fifth largest owner of apartments and the fourteenth largest apartment property manager in the United States. Its current dividend yield clocks in at 3.82%. There’s also AvalonBay Communities (AVB). It owns about 80,000 apartment units and is the third largest REIT in the U.S. Its dividend yield is 3.10%. Finally, there’s Camden Property Trust (CPT). It owns interests in nearly 60,000 apartments located in 171 apartment communities throughout the U.S. It’s currently yielding 3.45%. Bottom line: The single-family housing market remains broken, and no solution is on the horizon. Meanwhile, the glut of apartment inventories is nearly depleted. This is a recipe for higher rents… larger net operating incomes for landlords… and higher stock prices. Here’s the WSJ with our final word on the matter: Apartment companies continue to feel tailwinds from renters locked out of homeownership. Major owners have remarked on how few of their renters move out to purchase homes now, amid some of the worst conditions for home-purchase affordability in four decades. That is unlikely to change much in 2025. Shifting gears, if you’re looking for more explosive growth than what you might get with apartment REITs, our tech expert Luke Lango has you covered Last week, Luke published his “Top 10 Stock Market Predictions for 2025.” We’re quick to pay attention when Luke makes such forecasts given his track record. After all, in 2024, he made the following predictions: - The S&P 500 would rally more than 15% in 2024 (it climbed 23%)
- Growth stocks would crush value stocks (they did by about 3-to-1 throughout the year)
- AI and tech stocks would remain the hottest stocks on Wall Street (they did, as evidenced by either the performance of the Nasdaq, up 29% in 2024, or the Global X Artificial Intelligence ETF, AIQ, up 24%).
- Bitcoin would go to $100,000 (it did, topping out at about $108,000)
So, turning to stocks in 2025, where does Luke predict that we’ll see high-octane growth? Autonomous vehicles, electric vertical takeoff and landing (eVTOL) stocks, and Quantum AI stocks. Beginning with autonomous vehicle stocks, here’s Luke: Given the promising developments we’ve witnessed in the industry this year, we think 2025 will be the year that society officially enters the Age of AVs. And as such, we are very bullish on Autonomous Vehicle (AV) stocks in 2025. Luke highlights advancements from Alphabet, Baidu, Tesla, Aurora, and Uber, concluding, “We think 2025 will be the year that these AVs start going mainstream. As they do, we expect AV stocks to soar.” As to eVTOL stocks, also known as “flying car” stocks, here’s Luke’s take: We like these stocks for 2025 because a few of these firms are expected to finally launch commercial operations next year. As the industry inches closer toward widespread rollouts, we see eVTOL stocks taking flight. We think these stocks are primed for big gains in 2025. Some top eVTOL stocks for your research include Surf Air Mobility (SRFM), Archer Aviation (ACHR), and Blade Air Mobility (BLDE). Finally, Luke writes that Quantum AI will remain red hot: Quantum computing stocks have soared over the past few months, with a handful up more than 1,000% since early September. Now, we think that rally is overdone in the short term. But we expect these stocks to stay hot throughout 2025 because the quantum computing industry should increasingly move toward practical applications next year. As it does, quantum stocks will likely keep roaring higher. The top players in the Quantum AI space include IonQ (IONQ), Rigetti (RGTI), Quantum Computing (QUBT). For more on the specific ways that Luke is investing in his service Innovation Investor, click here. | Recommended Link | | | | Louis Navellier, tech investor and market veteran, believes Trump’s return will drive a second AI boom. Get the top six stocks he recommends before they skyrocket. Get the Details Here. |  | | Finally, let’s balance Luke’s “offensive” market orientation with some “defensive” words of wisdom from our macro expert Eric Fry While you step up to the plate looking to hit a grand slam with some well-researched speculative plays, remember to avoid accepting “bad” risks. Here’s Eric’s take: Marginal opportunities are what I call “bad risks,” or “asymmetrical risks.” That’s when the potential upside is much smaller than the potential downside… Disciplined investors understand the dangers of these risks. That’s why they begin their analysis by asking “What can go wrong?” rather than “What can go right?” Disciplined investors understand that investing is optional and that they must be selective. As an illustration of a more favorable tradeoff between potential gains and losses, we can look to Eric’s trades in his service Leverage. Because Eric uses call options, this enables his gains to have far greater return potential than his losses. After all, you can only lose the amount you invest in a call option, which gives you 100% risk control; but your returns can be multiples greater than your initial investment. For example, as I write, Eric’s Leverage subscribers are up 103% in their PayPal trade, 148% with Block, and 310% with Corning. Back to Eric: It’s OK to say “no” to bad risks. Unfortunately, many investors grow impatient. We justify buying richly valued stocks by comparing them to stocks that are even more richly valued. But it is still dangerous to buy stocks that are “less risky” … Avoiding bad risks is the essential first step toward outperforming the market. Wise words for 2025. We’ll keep you updated on housing/apartment investment opportunities, as well as Luke’s and Eric’s latest analysis here in the Digest. Have a good evening, Jeff Remsburg | 
