Juggling Dynamite

Useful cyclical insights from ECRI co-founder Laksham Achuthan in this recent MacroVoices segment starting at 6:15 on the play bar through 48:00. The ECRI charts he refers to are available here.

MacroVoices Erik Townsend welcomes ECRI co-founder Lakshman Achuthan to the show. They revisit Lak’s recession call from last summer, which he’s still committed to. They also examine the growth, business and inflation cycles along with ECRI’s leading indicators, which are plumbing lows never seen before except during the depths of the 2008 crash. Here is a direct audio link.

Surging home inventories and mean-reverting prices are excellent for those seeking attractive entry opportunities. But housing downcycles have historically taken an average of four years to bottom. So, patience and cycle foresight are key.

The segment below offers some good insight into housing dynamics in different US cities. As in Canada, the areas with the largest price increases in 2019-2022 are now vulnerable to the most expensive give-back phase. Average Canadian home sale prices are down 14% since the peak last February, and a new report from Oxford Economics forecasts that they could fall a further 16% by mid-2023. And that is not a worst-case scenario; see, a New report predicts Canadian home prices could correct by 30%–or more.

Correction drivers thus far have been higher interest rates and people looking to sell uneconomical properties bought high during the pandemic. Accelerants will be ongoing debt strain, rising unemployment, and investors looking to shift capital away from negative-carry properties to secure deposits, which are now yielding the most in 16 years (with no tenants or property maintenance headaches).

Home Prices could fall by 30% in 2023 as the Housing Crash gets worse. Particularly in hard-hit cities such as Phoenix, Austin, and San Francisco, where home prices are already down 10-15%.

It’s important for Homebuyers to remember that the US Housing Market is still in the biggest bubble ever entering 2023. The ratio of Home Prices to Income is the highest on record. Even higher than before the 2008 Housing Crash.

That means that homebuyers in America are priced out. They can’t afford the downpayments or mortgage payments. Which is the demand to buy houses is currently sitting at the lowest level in a decade. That record-low buyer demand is the sign of the first stage of the Housing Crash.

The second stage will include much bigger declines in prices. In cities such as Charlotte, Tampa, and Dallas, where home prices are 30% overvalued, we could see sellers cut the price substantially in 2023. Same in metros such as Miami and Las Vegas. Here is direct video link

Danielle Park of Venable Park Investment Counsel presents her view on Federal Reserve policy, how it ties in with the policy of the Bank of Canada, and the leading indicators she thinks investors should be paying the most attention to. Here is a direct video link.