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Housing-related equities have had a monster performance run, fundamental mojo remains strong, the tail on WFH/deurbanization is likely to remain a support and reported data over at least the next month or two will remain solid.
The broader question, however, is simply: after a +200% run off the March low and with a broad swath of indicators at cycle and/or multi-decade highs and some emergent stagnation vis-à-vis incremental gains, what are we playing for from here?
The tailwind list is progressively eroding. Consider the following:
- Mean Reversion: We are at/above historical average cycle peak levels across a number of volume metrics. We could certainly go a bit higher (and probably will, particularly on the New Construction side with existing supply almost nonexistent) but any former positive asymmetry has collapsed and arguably shifted in the other direction.
- Quad 2: Reflationary Macro regimes aren’t necessarily a death knell to the housing cycle but housing equites generally underperform, at the least, as the curve steepens and rising rates feedback negatively to affordability/demand/HPI. With Retail Sales growth hitting nosebleed levels to jumpstart the year, the curve steepening to cycle highs, commodities making multi-year highs and breakevens breaking out, Quad 2 dynamics have been on conspicuous display. We expect reflationary conditions to continue to characterize domestic/global macro through mid-year, at least.
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