THE LOCATION STRATEGY TOP 10

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INFLATION APPEARS TO HAVE PEAKED

This forecast from Nomura shows that it is expected to continue to decline. Note the significant contribution from rent + OER – as we’ve discussed in previous issues there are serious flaws in the lag in owner’s equivalent rent and it’s possible that this forecast is overstated.

SWITCHER-STAYER GAP CLOSING

The spread between wage growth of job switchers and job stayers has started to tighten, suggesting that labor demand has peaked. This is one of the key indicators cited by the Fed in previous FOMC meetings as evidence of overheating in the labor market.

LENDING STANDARDS HAVE NOT TIGHTENED

Banks are not tightening lending standards for mortgages. Demand has been falling anyway.

Buyers are starting to breathe life into the mortgage market again. Falling mortgage rates are beginning to stir demand in the housing market. The average 30-year home loan rate has come down by just about a full percentage point from a 20-year high above 7% in November, largely in response to signs that the Federal Reserve is nearly finished lifting rates. That has brought some new buyers into the market,

HOME PRICE DROPS LESS THAN EXPECTED?

CoreLogic expects home prices to decline only slightly on a year-over-year basis this summer before rebounding to finish the year at 3%.

RATE CHANGES BIGGEST CHALLENGE TO AFFORDABILITY

This chart shows the drivers of housing affordability (from the Atlanta Fed). Rate changes are almost entirely the sole driver of affordability change at this point.

BUBBLES HAVE PUSHED NEW HOME PRICES 50% HIGHER

The median new home sale prices today are around 50% higher compared to pre-2000 levels due to the two major housing bubbles that occurred in the 21st century. The first bubble had its peak in 2007 and the deflation phase lasted until 2009. The second bubble started in 2012 and is only starting to deflate in recent months.