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INFLECTION INSPECTION | FLEDGLING STABILIZATION IN HPI

Takeaway: The rate of change in home price growth matters to prices and the 2nd derivative is stabilizing.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume. 

 

INFLECTION INSPECTION |  FLEDGLING STABILIZATION IN HPI - Compendium 112514

 

With the Corelogic data in hand for about a month already, we completed the HPI trinity for September with the Case-Shiller and FHFA price series releases this morning.    

 

THE DATA:  The Case-Shiller HPI data for September showed home prices growing +4.9% YoY, decelerating -70bps vs. +5.6% in August.  Meanwhile, the FHFA series showed home prices growing at +4.2% YoY, decelerating -60bps vs the 4.8% rate of increase reported for September. 

 

So, home price growth continues to decelerate.  However, its that rate of deceleration that we’re principally concerned with. 

 

THE DERIVATIVE:  Its worth re-highlighting our base conceptual, top-down framework for housing as its been effective across cycles and centers on HPI trends:

 

Housing Demand leads HPI --> Home price growth follows the slope of demand on an 12-18mo lag --> Housing related equities follow the slope of home price growth

 

We have anchored on the 2nd derivative move in HPI trends as a key signal because, historically, equity prices across the housing complex have followed the slope in home price growth. 

 

The 1st chart below illustrates the Equity Price-HPI relationship.  The 2nd chart shows the emerging 2nd derivative stabilization in HPI trends.

 

INFLECTION INSPECTION |  FLEDGLING STABILIZATION IN HPI - CS vs ITB

 

INFLECTION INSPECTION |  FLEDGLING STABILIZATION IN HPI - HPI 2nd Deriv     

 

We’ve seen this same cycle dynamic play out again in 2014 with housing related equities significantly underperforming alongside the ~6 months of discrete deceleration since home price growth peaked in February.   

 

INFLECTION INSPECTION:  Our tone on housing has shifted (we were explicitly bearish from Jan-Oct) in the last month as many of the negative dynamics that we flagged earlier this year have largely or completely played out. 

 

While the macro environment remains a discrete risk to housing, (very) easy volume compares, the lapping of weather/QM Implementation/FHA loan limit reductions, looser regulation, and a fledgling stabilization in 2nd derivative HPI trends all sit as modest, prospective tailwinds for 2015. 

 

Essentially, the balance of risk from a rate of change perspective has largely shifted.   

 

We'll be hosting a call on December 11th to update our views on housing heading into 2015. 

 

INFLECTION INSPECTION |  FLEDGLING STABILIZATION IN HPI - CS 20 City NSA YoY   TTM

 

INFLECTION INSPECTION |  FLEDGLING STABILIZATION IN HPI - CS 20 City Scatter

 

INFLECTION INSPECTION |  FLEDGLING STABILIZATION IN HPI - CS SA MoM

 

INFLECTION INSPECTION |  FLEDGLING STABILIZATION IN HPI - FHFA HPI TTM

 

 

About Case Shiller:

The S&P/Case-Shiller Home Price Index measures the changes in value of residential real estate by tracking single-family home re-sales in 20 metropolitan areas across the US. The index uses purchase price information obtained from county assessor and recorder offices. The Case-Shiller indexes are value-weighted, meaning price trends for more expensive homes have greater influence on estimated price changes than other homes. It is vital to note that the index’s printed number is a 3-month rolling average released on a two month delay.

 

Frequency and Release Date:

The S&P/Case-Shiller HPI is released on the last Tuesday of every month. The index is on a two month lag and therefore does not reflect the most recent month’s home prices.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


Keith's Macro Notebook 11/25 Oil | Russia | UST 10YR

Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.


LEISURE LETTER (11/25/2014)

Tickers:  GTK.IM, MGM, RCL

EVENTS

  • Dec 1:  8:30 am  IKGH Q3 earnings
  • Dec 17:  Upstate NY casino decision

COMPANY NEWS 

GTK.IM – The GTECH-led Northstar Consortium managing the New Jersey Lottery fell short of its revenue target by $24 million in the year ended June 30 and lottery collections, New Jersey's fourth-largest revenue source, were down 9.2% from July 1 through Oct. 31 versus a forecast for annual growth of 7.4%.

Article HERE

Takeaway: Statewide lottery results are down for most States (notably Illinois and Indiana) on a year-over-year basis.

  

MGM – completed its $1.25 billion 6% Senior notes unsecured notes due 2023.  $1.15 billion was issued at par, while an additional $100 million was issued at 100.75%.

Takeaway: MGM attributes the raised offering from $1.15 billion previously to 'strong demand' from the investment community.


RCL – Celebrity Cruises canceled two port stops on Celebrity Millennium in Indonesia this week due to an undisclosed 'dispute' with Indonesian authorities. The line has canceled a two-night stay in Bali scheduled for this Thursday and a port call in Komodo Island on Sunday November 30 on Celebrity Millennium. Instead, the sailing will call in at Ho Chi Minh City and Bangkok. Millennium is on a 14-night cruise round-trip cruise from Singapore that had been scheduled to call in Indonesia, Thailand and Malaysia.

Article HERE

 

MSC– MSC Cruises has started a fleetwide optimization enabled by Marlink to improve shipboard Very Small Aperture Terminal (VSAT) connectivity. MSC Cruises is the first cruise line to use the iDX 3.2 software and X7 modem from iDirect for enhanced service delivery and performance.

Article HERE

Takeaway:  WiFi has become an essential onboard offering for potential cruisers.  MSC doesn't want to be left behind.

INDUSTRY NEWS

Macau VIP Junket Operator Seeks HKSE Listing– Sing Hou Entertainment Group Ltd is seeking to list its shares at the Hong Kong Stock Exchange. The company’s draft application for listing says it wishes to expand its customer base and market share. Sing Hou Entertainment runs a VIP gaming room in the StarWorld casino, but intends to reduce its dependence on Galaxy Entertainment Group Ltd by operating junkets to casinos run by other gaming companies.

Article HERE

Takeaway: Junkets seeking other capital markets solutions to their liquidity constraints.

 

Macau Political Reform – Comments delivered by lawmaker Ng Kuok Cheong sparked further debate on Macau’s political reform, but it remains clear that, for some, democracy is not a priority. The government reiterated the stance that democracy is not only about introducing universal suffrage. A large number of legislators said that there are rather more pressing matters needing the administration’s attention, namely housing and public transportation. Ng believes that the electoral system is not being developed taking into account Macau’s reality. As only 14 lawmakers have been directly elected by Macau’s citizens, it’s not enough to represent the local population.

Article HERE

Takeaway: Thus far, Macau has not experienced the public protests against the the Mainland China SAR system. While the upcoming visit by Chinese President Xi Jinping to Macau around December 20 could present potential for protests, Macau is not Hong Kong.

 

Macau Public Transit Criticized – There are simply not enough buses. This topic reappeared, as lawmakers questioned the government on its policy to provide residents with an improved public bus system. Public commentary by legislator Au Kam San prompted debate as well as questions directed to the deputy director of the Transport Bureau (DSAT), Chiang Ngoc Vai, regarding the priority of this issue.

Article HERE

Takeaway: Worker transportation and housing remain key issues and may become tenants of gaming concession renewal discussions.

 

Singapore Changi Airport Traffic – Changi Airport handled 4.49 million passengers in October, a 1.9% YoY increase. Passenger movements between Singapore and China rose 5%.

Article HERE

 

LEISURE LETTER (11/25/2014) - cha


Takeaway:  Visitation at Changi have been flattish since June 2014

 

Hong Kong Police Begin Clearing Protest Barricades – Hong Kong police began removing protesters from a key road at a pro-democracy protest site in Mong Kok as hundreds continued to block Argyle Street hours after authorities began enforcing a court injunction to open the road. The main occupation area at Mong Kok, a densely populated working-class district that is a popular tourist and shopping area. 

Article HERE

 

Massachusetts – The state gaming commission set January 30 as the deadline to apply for the southeastern region casino license. Only KG Urban (New Bedford project) has formally applied but the Mashpee Wampanoag (Taunton project) and Foxwoods may apply as well.

Global Hotel Rate Outlook for 2015 –  American Express Global Business Travel released its 11th annual Business Travel Forecast for 2015 and highlights include:

  • North America: hotel rates growth for mid-range hotels of 3% to 6% and upper-range hotels 3.5% to 7%.
  • Latin America: hotel rate growth of 5% to 8% and upper-range hotels 5% to 7%.
  • EMEA: hotel rate growth of 1% to 6% for mid-range hotels and 0% to 5% for upper-range properties.
  • Asia Pacific: hotel rate growth ranges from 0.8% to 3.5% for mid-range hotels and 0.7% to 3.5% for upper-range hotels.

Article HERE

Takeaway: Solid rate growth projections from AMEX

MACRO

China Additional Interest Rate Reductions – the PBoC reduced 14-day repo rate to 3.2% from 3.4%, the third time in three months. Prior rate reductions include a cut to 3.4% from 3.5% on October 14 and from 3.7% to 3.5% on September 17. 

Takeaway:  More loosening policies

 

Singapore GDP Growth – the Singapore economy expanded 2.8% during Q3 2014, better than the consensus advance estimate of 2.4%. Despite the better growth, manufacturing and construction remained anemic. Singapore's Ministry of Trade and Industry expects full-year economic growth to come in at 3%. 

Article HERE

 

Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015. Following CCL's F3Q 2014 earnings release, we recently turned negative on those stocks based on the negative European thesis. 

 

Hedgeye Macro Team remains negative on consumer spending and believes in muted inflation, a Quad4 set-up.  Following  a great call on rising housing prices, the Hedgeye Macro/Financials team is decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.

 



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Hedgeye Morning Macro Call with CEO Keith McCullough: 'We're Running Out of Central Plans'

 

Hedgeye CEO Keith McCullough pulls no punches discussing the latest global market and economic developments in this complimentary peek behind-the-macro-scenes of today's morning macro call for institutional subscribers.




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