CHART: Where We Are In The Homebuilding Cycle

There has been much talk of a recovery in home prices. But there are still some crucial risks that could pose as a significant obstacle to an upturn in housing.

In a new note, Citi analyst Will Randow identifies four threats to the housing recovery:

  1. A slowdown in economic activity, especially a rise in initial unemployment claims and a decline in consumer confidence.
  2. A significant increase in listed foreclosures and short salesĀ 
  3. Adverse government intervention
  4. A rise in mortgage rates that would lower affordability.

Moreover, households may put off home purchases since they better understand that job security is less certain now, since they are constantly being warned of global turmoil and since declining home prices makes them less likely to look at home purchases as an investment.

Now here is a chart from Citi that shows that the U.S. homebuilding market is transitioning from the contractionary phase to one of stabilisation. It also shows you how you can position for different phases of the homebuilding cycle:

citi housing cycle chart

Photo: Citi Investment Research and Analysis

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