A nice table of lags in housing-to-employment, summarising the cycle quite well.

Say housing sales and homebuilder surveys peak in 2005 (as it did in the prelude to the GFC) due to tighter policy / exuberance-animinal-spirits-starting-to-realise-they’ve-gotten-carried-away.

It takes some time for that to filter through to starts and construction, and, as that pipeline is worked through, and the forward order books empty out, for residential construction employment to peak-and-begin-to-fall.

In turn, because housing is such a key-connected-important driver of the overall cycle, the negative spill-overs filter through to the broader economy over time.

What’s the point?

Well, we are trying to work out how dangerous this current housing cycle downturn will be, and what’s priced in to equities, and risky assets more broadly.

I think the market has a bit of a tailwind, some of it valuation based, some of it sentiment based (“Santa rally”) some of it fundamental based (inflation is showing strong signs of decreasing from here). We can add to that the positive “China reopening story”, and perhaps even the progress of Ukraine against Russia (“entering the end stage” of the conflict).

That’s contributing to a global rally in risk.

However, we think the China approach won’t and can’t work, and that the dangers of overtightening are very real, such that if the market rally gets ahead of itself, we will happy fade that strength.

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