[Editor’s note: I generally confine any housing related research to the Hedgeye Housing vertical but the ATH in the Builder HMI this morning offered a convenient opportunity for a summary redux of prevailing conditions - a microcosm of the broader macro housing environment, so to speak. If you are interested in the Housing research distribution, please contact ]
Hinges in history whereby secular trends pivot and reverse are powerful forces. Further combined with ATH’s/ATL’s in fundamental factor space and that condition set is, collectively, a seductive temptress.
All-time low rates, lower forever rate expectations, all-time tight existing market supply conditions, prospects for a durable deurbanization trend, percolating prospects around climate-related migration and a rejuvenized grab for inflation hedge assets amidst discrete monetary-fiscal cooperation (expectations surrounding the Fed’s higher inflation tolerance and latent YCC implementation) remains a sirenic constellation for both builders and investors.
Deurbanization, climate migration and overt monetary-fiscal partnership may or may not prove to be hinges in history, but the above pretty well captures the psycho-emotional zeitgeist propelling Builder Sentiment to record highs in September.
We could highlight that further upside is probably limited, the vertical ascent in lumber prices are set to push costs above the affordability benefits from lower rates and that broadly slowing macro mojo increasingly carries the potential to spill-over, on the margin, to volume trends which, while holding at cycle highs, have displayed a conspicuous leveling off since peaking in late June … but with the Housing HSI at 18Y highs and positivity set to pervade reported demand fundamentals over the coming month(s), the prevailing zeitgeist clearly remains in the driver's seat with respect to current sentiment and the near-term outlook.
