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Poll of the Day Recap: 54% Voted Housing Market is Heading Lower

Takeaway: 54% voted LOWER, 46% voted HIGHER

Mortgage purchase applications are down 18% year-over-year. The only recovery in housing at this point is the new and high end market ($1M+). Hedgeye's expectation remains that the back half of this year, and the first half of 2015, should see steady downward pressure on the rate of home price appreciation.


In the video below Housing Sector Head Josh Steiner states that various aspects of the U.S. housing market are deteriorating and describes how changes in housing prices and volumes are causing a major inflection point in this $18-19 trillion asset class.



We wanted to know what you think. Is the U.S. housing market heading higher or lower?


At the time of this post, 54% voted LOWER, 46% voted HIGHER.


Voters who forecast the U.S. housing market heads LOWER reasoned:

  • Housing is slowing and could slow for many years to come. The 2011-13 rebound in US housing "reminds" me of the summer-of-2000 bounce in the Nasdaq. Too much erosion of sequential momentum to comp the comps in the intermediate term and too many regulatory and demographic headwinds to sustain the trend over the long term. This call is as easy as it gets, IMO.
  • "At some point" price and wages have to come in line. Perpetuating rising home prices is a form of generational theft that is going to keep Millennials out of the market.  With Millennials out of the market, the marginal buyer is institutional (including public pension funds that are searching for yield).  This could turn into a battle of institutions that spike prices higher, but "at some point" the ability to collect rent from an under-employed populace will destroy the cash flow rationale.  When the yields dry up, the liquidations will start and prices will follow.
  • We won't see an across the board correction, just lower, for a slight correction, in some markets, but I also wouldn't be short housing since there are better areas to be short.

Those who voted HIGHER had this to say:

  • I would rather think of it as a bond. Home prices will go higher on the low end "shorter duration" as Millennials compete to find homes below their current rental payments. The marginal homes just below the 1%ers are doomed as higher rates erode affordability.
  • It's going higher in NY.  Real estate listings that track price changes show brokers and owners raising prices by as much as 4-5% even over the course of just 1 month.  It's probably psychological since they're getting lower offers than the original listing, so the new lower offer on the higher price ends up getting them the price they originally wanted, but there are also plenty of buyers who can afford higher prices in the city.  It'll level off at some point, but probably not anytime soon.
  • With the markets in solid shape, housing will unfortunately continue to rise, at least slightly, slightly before it drops.  Like with everything in the markets, this is a timing issue, so though I think it'll go lower eventually, it'll inch up first.
  • while there is congestion in the market now, longer term, people still want to own homes.  the market may languish for a year or so, but ultimately will recover and move higher. the economy is in better shape than gurus want to admit
  • depends on your time frame of course. Near term, 6 - 12 months, lower as incomes have not kept up with recent price rises. Longer term higher as populations rise and the need overcomes price discretion




Cartoon of the Day: Sleep Walking

Takeaway: No matter what anyone says, it is not different this time.

As Hedgeye CEO Keith McCullough noted earlier today, it's been 48 trading days since the S&P 500 has had a +/- 1% day. That's only happened one other time in two decades.


Meanwhile, Volatility (VIX) is up over +17% from its June 18th low.


No, it's not different this time.

Cartoon of the Day: Sleep Walking - S P walking 6.26.2014


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Initial Claims: 'Insular Tahiti'

Takeaway: Still no sign of negative inflection from the claims data.

This is an excerpt of a research note published earlier today.

"For as this appalling ocean surrounds the verdant land, so in the soul of man there lies one insular Tahiti, full of peace and joy, but encompassed by all the horrors of the half-known life. God keep thee! Push not off from that isle, thou canst never return!" - Herman Melville, Moby Dick


The labor market appears to be the "insular Tahiti" Melville speaks of, surrounded by an appalling ocean of miserable data. Evidence continues to mount that the consumer is getting increasingly squeezed on the back of rising costs (commodities +11.6% YTD) and stagnant wages (personal income is +1.9% YTD). What's an investor to do?


Initial Claims: 'Insular Tahiti' - InsularTahiti 3


Our take is that investors should stick with claims as their weathervane. It's been a prescient indicator of turning points, marking both the top and bottom of the last cycle clearly and in a timely manner.  


Along those lines, rolling initial jobless claims (NSA) were 9.0% lower than at the same point last year, which was in-line with the trend over the past 5 weeks (-9.8%, on average). The 9.0% improvement marks a slight deterioration vs the prior week's 10.1% improvement but isn't anything we'd get overly excited about.


The Data

Prior to revision, initial jobless claims fell 0k to 312k from 312k WoW, as the prior week's number was revised up by 2k to 314k.


The headline (unrevised) number shows claims were lower by 2k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 2k WoW to 314.25k.


The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -9.0% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -10.1%


Initial Claims: 'Insular Tahiti' - 2


Initial Claims: 'Insular Tahiti' - 6


Initial Claims: 'Insular Tahiti' - 7


Joshua Steiner, CFA




Jonathan Casteleyn, CFA, CMT



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Keith's Macro Notebook 6/26: COMMODITIES COPPER UST 10YR

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