10. ANALYTICS: Housing Starts
sources: HiddenLevers, WSJ, Goldman Sachs, Forbes, Economist
Boom-bust cycle in home construction. No homeostasis.
Changes in housing starts predict direction of unemployment
rate some 12-18 months out.
average
1.46M
average
peak
2M We are:
60%
below
peak
20%
below
average
average
low
870k
11. ANALYTICS: Home Prices
sources: HiddenLevers
50 years of housing prices increasing
Great Depression
WWII
2x low of Great Depression
12. ANALYTICS: Impact of Rate Hikes
sources: HiddenLevers
Theory
Interest rates move inverse
to US home prices.
Reasoning
because higher interest
rates mean a higher
mortgage payment.
Reality
Interest rates follow or lag
US home prices.
(Fed playing catchup?)
2003-06 rally
2007-12 crash
13. ANALYTICS: Impact of USD
sources: HiddenLevers, The Australian
China #1 foreign investor in US + Australian property markets
Ditching Yuan for US Housing
15. Key Lever Change
Downside Scenario Change
Scenario Update
Back to Long Term NormsDouble Dip
Bad Ugly
US Home Prices
Buh-Bye
HOME
SALES
HOME
PRICES
HOUSING
STARTS+$
16. GOOD: New Highs
source: HiddenLevers, Bloomberg,
demand for US housing, from US + outsiders alike
housing
starts still
at lows
momentum
bigger than
rate hike
win win for
foreigners
catchup
after builder
timeout
labor need
rises, so too
inflation
17. NEUTRAL: Rate Hike Interruption
13% from
highs in
home prices
housing rebound slows due to Fed raising rates
source: HiddenLevers, CNBC, WSJ,
may correct
in time, not
price
affordability
double
whammy
rising
borrowing
costs – duh!
rate hike
NO
rate hike
18. UGLY: Double Dip
negative
wealth
effect
source: HiddenLevers, Economist,
only occurs
with US
recession
China Recession --> US Crash --> Housing Downturn
insolvent
Chinese
home buyers
weighs on
unemployment
housing in
everything
bubble
19. Scenario: US Housing Rebound
home prices
135 -25%
home prices
175 -3%
home prices
210 +17%
key
lever
Housing starts still have a
lot of room to run, and
demand not abating, both
foreign + domestic.
The fed action won’t kill
the housing market
momentum completely,
but should arrest its
upward trajectory.
China recession would drag
the first world into
recession and the US would
not escape. Housing prices
and unemployment would
suffer.
Good
New Highs
Neutral
Rate Hike
Interruption
Ugly
Double
Dip
20. US Housing Rebound – Take Aways
rate hikes lag housing market Housing recovery is still young
housing market crash unlikely
without external meltdown
Housing Starts are an excellent
leading indicator