Thread by @fkronawitter1

1- #ConnectingTheDots Checking in on #Housing following recent data

Question 1: What will happen to HOUSE PRICES?

Let's keep things simple - there is a RECORD number of houses under construction...

2- ...the SUPPLY of new homes is near a RECORD...

3- ...affordability is tracking very POORLY...

4- ...and prices have gone PARABOLIC

5- CONCLUSION: Historically, overheated housing markets often balanced through long periods of FLAT PRICES (e.g. L.A. 1989-1997, Germany 1995-2005)

However, distortions in US housing market are so EXTREME that in my view price DECLINES are very likely

6. Question 2: What does a slowdown in #Housing mean for GDP GROWTH?

As a result of the huge delta in BID-ASK between buyers and sellers, home sales have COLLAPSED

7- This will slow the sector tremendously. A return to the relative share of FIXED RESIDENTIAL INVESTMENT as % GDP to 2008/9 lows seems plausible = a ~1% drag on GDP from here

8- This is limited on its own, but causes a RIPPLE throughout the economy. Less #Housing = fewer paint jobs, less furniture, fewer Ford pickups etc. etc.

So the 1% drag will be AMPLIFIED. It won't be as bad though as 2008/9 (back then 3.5% GDP drag from #Housing alone!)

9- Finally, the last decade provided TAILWINDS from mortgages REFINANCES, as interest rates fell to ever lower levels. That is gone

9- CONCLUSION: The slowdown in #Housing likely creates a considerable drag on GDP growth. However, it will be nowhere near as bad as 2008/9

Historically, this slowing has taken 6-8 quarters to unfold. We are currently ~1 quarter in

End.