Housing Rebound Over?01 September 2015

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US Housing Analytics

Scenario: US Housing Rebound

Housing Rebound Over?

HiddenLevers

MARKET UPDATE

Fischer + Fed undeterred on rate hike

Market Update

sources: HiddenLevers, Economist, MarketWatch,

1

3

Oil goes sub 40 usd

2

3.7%US GDP upward revision

2.3%

CHINA 2015: Global Index Comparison4

-38%

-10%

sources: HiddenLevers

CHINA 2015: HiddenLevers quite helpful

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Functionality

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US HOUSING ANALYTICS

TRENDS: Household formation + Affordability

sources: HiddenLevers, Bloomberg, FRED, WSJ

Households Up.

Prices Rising.

Affordability Falling.

ANALYTICS: Housing Starts

sources: HiddenLevers, WSJ, Goldman Sachs, Forbes, Economist

Boom-bust cycle in home construction. No homeostasis.Changes in housing starts predict direction of unemployment rate some 12-18 months out.

average 1.46M

average peak 2M We are:

60% below peak

20% below

average

average low

870k

ANALYTICS: Home Prices

sources: HiddenLevers

50 years of housing prices increasing

Great Depression

WWII

2x low of Great Depression

ANALYTICS: Impact of Rate Hikes

sources: HiddenLevers

TheoryInterest rates move inverse to US home prices.

Reasoningbecause higher interest rates mean a higher mortgage payment.

RealityInterest rates follow or lag US home prices. (Fed playing catchup?)

2003-06 rally

2007-12 crash

ANALYTICS: Impact of USD

sources: HiddenLevers, The Australian

China #1 foreign investor in US + Australian property markets

Ditching Yuan for US Housing

HiddenLevers

SCENARIO: US HOUSING REBOUND

Key Lever Change

Downside Scenario Change

Scenario Update

Back to Long Term NormsDouble Dip

Bad Ugly

US Home Prices

Buh-Bye

HOME SALES

HOME PRICES

HOUSINGSTARTS+$

GOOD: New Highs

source: HiddenLevers, Bloomberg,

demand for US housing, from US + outsiders alikehousing

starts still at lows

momentum bigger than

rate hike

win win for foreigners

catchup after builder timeout

labor need rises, so too

inflation

NEUTRAL: Rate Hike Interruption

13% from highs in

home prices

housing rebound slows due to Fed raising rates

source: HiddenLevers, CNBC, WSJ,

may correct in time, not

price

affordability double

whammy

rising borrowing

costs – duh!

rate hike

NOrate hike

UGLY: Double Dip

negative wealth effect

source: HiddenLevers, Economist,

only occurs with US

recession

China Recession --> US Crash --> Housing Downturn

insolvent Chinese

home buyers

weighs on unemployment

housing in everything

bubble

Scenario: US Housing Rebound

home prices

135 -25%

home prices

175 -3%

home prices

210 +17%

key lever

Housing starts still have a lot of room to run, and demand not abating, both foreign + domestic.

The fed action won’t kill the housing market momentum completely, but should arrest its upward trajectory.

China recession would drag the first world into recession and the US would not escape. Housing prices and unemployment would suffer.

GoodNew Highs

NeutralRate Hike

Interruption

UglyDouble Dip

US Housing Rebound – Take Aways

rate hikes lag housing market Housing recovery is still young

housing market crash unlikely without external meltdown

Housing Starts are an excellent leading indicator

Risk ProfileImproved Stress Test

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