Is the US economy headed for a recession soon?
The Fed has been aggressively working to slow down the economy to a “soft landing.”
However, investors like Warren Buffett and Michael Burry seem to be preparing for a harder landing.
Warren Buffett and Michael Burry have rattled financial markets with bearish disclosures this month. Steve Hanke says the Berkshire Hathaway CEO and the investor of “The Big Short” fame are likely preparing for trouble.
Berkshire sold a net $8 billion of stocks and slowed its pace of buybacks last quarter, sparking a 13% rise in its money pile to a near-record $147 billion…
As for Burry’s Scion Asset Management, it disclosed put options against S&P 500 and Nasdaq-100 index funds with a notional value of $1.6 billion at the end of June. Placing the bearish wagers would have only cost Burry a fraction of that figure, but they still represent a big bet given the rest of his portfolio was only worth about $111 million at the time.
So, what does that mean for the housing market?
This is what we know:
- Transaction volume has slowed to historical lows
- Price growth has slowed significantly, and even turned negative in some markets
- Mortgage rates have hit 20+ year highs
- Housing supply has not improved much
- Demand has remained relatively strong relative to supply
- Housing affordability has fallen sharply
- New home construction permits and completions are down YOY while starts are up slightly
The long-term outlook for housing appears to be healthy given supply and demand trends.
However, the short-term outlook is a bit more uncertain.
Below are a couple of graphs that are worth considering when trying to wrap your head around how the housing market might endure any market turbulence ahead.
The first graph is the S&P/Case-Shiller U.S. National Home Price Index which measures monthly changes in the total value of all existing single-family housing inventory (the shaded areas represent a recession):
| This next graph closely correlates with the S&P/Case-Shiller index, measuring quarterly pricing for all single-family housing transactions: |
Other than the housing crash in 2008-09, housing prices remained relatively flat during previous recessions.
What will the chart shape out to be over the next few years?
Most housing experts seem to think that price growth will remain relatively flat throughout 2023 and possibly into 2024 when price growth will start to accelerate again.
The data seems to support that prediction (which I generally agree with).
Of course, there are a lot of factors that play into that analysis, particularly mortgage rates and the job market.
And as we all know, all real estate is local so national trends do not reflect all local markets equally.
PS: While Warren Buffett may be preparing for a recession, he also recently made a sizable bet on DR Horton and two other homebuilders.