Housing market dynamics are crucial to understand if you want to become a better macro investor
Here’s what you need to know
A thread 🧵
Here’s what you need to know
A thread 🧵
2/ The housing market is a leading indicator of the broader economy and the stock market
It tends to deteriorate before economic slowdowns, giving an advanced warning of economic pain
It tends to deteriorate before economic slowdowns, giving an advanced warning of economic pain
3/ The housing market is the first sector to weaken when the Fed raises interest rates
4/ Demand for housing is driven by mortgage rates, which are highly sensitive to changes in the Fed’s monetary policy
Higher interest rates lead to higher mortgage rates, which reduces demand for housing
Higher interest rates lead to higher mortgage rates, which reduces demand for housing
5/ Home buying tends to contract in the year preceding a recessions, weakening even before consumer spending does
Falling sales volume reduces demand for durable goods like refrigerators, TVs, and furniture
Falling sales volume reduces demand for durable goods like refrigerators, TVs, and furniture
6/ The housing market is a leading indicator for the business cycle, which can help predict corporate earnings
Slowing housing market activity leads to lower earnings growth, negatively impacting equities
Slowing housing market activity leads to lower earnings growth, negatively impacting equities
7/ Existing home sales have been a reliable predictor of corporate earnings growth
As home values increase, people tend to spend more due to wealth effect, which eventually boosts the earnings of the S&P 500
The opposite holds true for times when home prices go down
As home values increase, people tend to spend more due to wealth effect, which eventually boosts the earnings of the S&P 500
The opposite holds true for times when home prices go down
8/ Existing home sales provides an advanced signal for investors to position their portfolios against incoming economic strength/weakness
Our research found that existing home sales lead S&P 500 earnings by approximately 10 months
Our research found that existing home sales lead S&P 500 earnings by approximately 10 months
9/ It’s important to remember that housing market indicators are not the only factors that affect stock market earnings
But investors who monitor housing market indicators, like existing home sales, can gain insights into the future direction of the economy and equities
But investors who monitor housing market indicators, like existing home sales, can gain insights into the future direction of the economy and equities
10/ TLDR;
1. The housing market is a key leading indicator of the business cycle and the stock market
2. The Fed affects mortgage rates, which in turn affects home sales
3. Existing home sales can help anticipate corporate earnings
1. The housing market is a key leading indicator of the business cycle and the stock market
2. The Fed affects mortgage rates, which in turn affects home sales
3. Existing home sales can help anticipate corporate earnings
11/ Thanks for reading!
If you found this thread valuable, please ❤️ and 🔁 the first tweet below
And follow @gameoftrades_ for more market insights, finance and investment strategies
If you found this thread valuable, please ❤️ and 🔁 the first tweet below
And follow @gameoftrades_ for more market insights, finance and investment strategies
Loading suggestions...