August Home Prices +12.4%


The most recent CoreLogic home price data (August) remains very constructive – +12.4% year over year and +0.9% sequentially when compared to July.  This marks the 7th consecutive month of double digit increases and the 18th consecutive month of positive results going back to February 2012.

As we move past peak selling season, the pace of home price appreciation should moderate, which is consistent with our view as the recent data has begun to outstrip our regression-based analysis (Exhibit 1).

Certainly we are not so naïve as to suggest that the market cares about prices relative to our analysis and we recognize it is more than capable of overshooting both on the upside and the downside, however, we think this analysis is consistent with our other work that suggeststhat the market, whether for homes or equities, needs to start to see consistent increases in disposable income in order to support an upward trajectory.

 Exhibit 1:  Home Prices and Disposable Income

UntitledHaving said that, while we anticipate that the pace of gains will moderate, we continue to believe that year over year increases in home prices are likely to continue for the foreseeable future.

In conclusion, we remain constructive on housing trends and by extension the consumer, to the extent that the wealth effect of housing can continue to buoy consumption.  In this context, we continue to prefer equities with leverage to the housing sector – LOW and HD in our universe, though we can expand that list to include names such as NWL and BBBY.  We see several sources of pent-up demand for housing (lower stay at home rates, higher movement rates) and, importantly, we see the housing market closer to equilibrium in terms of price and homeownership rates than it has been at any point in the past 5 years.

 Exhibit 2: Home Prices and Income


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