Housing finance

Today was housing finance data, coming hot off the heels of the building approvals data.

The numbers across building approvals, number, value, & housing finance commitments (new loans) are abysmal.

We are between a rock and a hard place. 1) This sort of data strongly suggests cutting rates. 2) The broader inflation and employment data suggest hiking.

But 2) explains 1).

The whole point of tighter monetary policy is to hit the cyclically pointy parts of the market (housing, autos) and have it sprawl out / spread from there, weakening demand across other sectors like water rippling across a pond.

But we already have a terrible shortage of things we need in that space. That’s the problem when your primary tool (rates) is applied to something as complex and context (time) dependant as the economy.

Still, what it isn’t good for.

Consumer discretionary stocks, banks.

Banks, because quite directly lending data is their revenue line. Consumer stocks because it is correlated to their activity (wealth effects, in housing) and economic activity more generally.

The retail downgrades mentioned in our earlier note (Adairs, the homewares people) point well to this, i.e. “we are downgrading b/c rates and inflation are hitting our customer”.

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