As of the first quarter of this year, residential real estate investment (actual homebuilding activity) as a percentage of GDP checked in at an all time low over the history of the data. Not exactly a shocker given the unprecedented length of the prior up cycle and current magnitude of available inventory of vacant homes (obviating the need for further building). As we've said many a time over the years, the three constants in US economic recoveries past have been pent up demand for housing, autos and credit. At least for now, two of the three remain down for the count with auto sales still far below prior cycle peaks. This is exactly why the rhythm and tone of government borrowing and spending has been and continues to be so critical at present, having supplanted private sector demand.
But as mentioned, at least historically, housing (the NAHB index) has been a leading indicator for key headline macro economic watch points as we will detail in the charts below. And importantly, the NAHB index has led many a perceptually important headline macro economic stat at cycle lows and highs, making it pretty darn important in our eyes. Moreover, as we'll show you in a minute, NAHB directional movement has also been highly directionally correlated with the rate of change movement in equities over time. First the very simple relationship between the NAHB index and consumer confidence immediately below. To this day the directional correlation and leading tendency of the NAHB numbers remains fully intact. As is clear, the NAHB index led the turn upward in consumer confidence after the 1990 and 2001 recessions, and at least so far likewise in the current. Same deal at cycle peaks seen in the late 1980's, 1999 and late 2006. This chart we put together just before the June CC numbers hit the tape and we've left it untouched just to show that the NAHB foretold the perceptually large decline for the month. Right on cue.
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