Eq: Total Market

(Miami)

The Wall Street Journal has just put out the first thoroughly insightful article about the new homes crisis that we have yet seen. The US is currently plagued by one of the most severe declines in new home construction in the last century and the piece interviews many parties, including home builders, to understand why. The heart of the issue is that the costs to build a new home have roughly doubled since just before the Crisis, as labor, land, and materials have surged in price. Accordingly, many builders now only build luxury homes, where the margins are fatter for them. The low end of the market has been left with very few homes for a large number of buyers, which has sent prices through the roof.


FINSUM: So we have surging pricing at the same time as rising interest rates. Prices look set for a big fall in the near to medium term.

(New York)

Barron’s has just interviewed a prominent economist—Stephanie Pomboy—and she has some very interesting opinions about the economy. Rather than seeing the economy’s recent growth as a good performance, she analyzes the data to show that this pickup in growth is actually the last gasp of American consumers before a big recession. Digging into corporate spending data, she shows how the US consumer has been stretched by everyday expenses even as discretionary spending is weak. Consumers have had to pay for extra everyday costs, such as on food and energy, from savings or credit. Now that the savings rate is starting to rise, Pomboy thinks we are headed for a recession.


FINSUM: This is an entirely different way to read the tape, but may not be that far off the truth.

(Atlanta)

There is a very particular kind of housing problem currently affecting the US—a serious shortage of homes at the lower end of the cost spectrum. Not only is inventory thin, but the housing stock available for first time buyers is in poor condition and prices are rising quickly (10% in the last year). The average starter home on the market is 9 years older than it was in 2012 and is 2% smaller. That price growth is outpacing other categories.


FINSUM: So the big worry we have is that with all the price appreciation happening, prices are more primed to fall considerably as rates hit a tipping point where they start to curtail mortgage borrowing.

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