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| Housing Review |
The US Home Construction's overall trend, revealed by trends of price, leverage, and time, are defined in The Matrix for subscribers.
Subscriber Comments
Housing's Roles As An Early Warning
People tend to see what they already believe, and after 2005, many didn’t believe the economy was in trouble, even as our Housing Oscillator fell below zero in 2026. We discuss this in greater detail with subscribers in the Housing Report, but these trends are too important to overlook. Because the report is often ignored until the stress becomes obvious, we’ve expanded the discussion today to provide more context on what these signals were telling us.
Chart: Housing Oscillator
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Residential construction is weakening even as large investments in data centers, power infrastructure and manufacturing continue to support nonresidential construction. These projects are absorbing workers who might otherwise show up as displaced residential construction labor, making overall construction employment appear healthier conditions in the housing market. Lennar signaled that construction cost softening appears to be over, and labor availability is starting to tighten.
Lennar is now reporting tighter labor availability in some markets as data center construction competes for workers, while reduced immigration is also limiting the available labor pool. That creates a challenging combination of constrained housing demand, while builders are facing a tighter labor pool.
The more useful historical comparison is not September 2008, but October 2007. The Housing Oscillator (LTCO) fell below 0 in 2006, mortgage distress (delinquencies) was spreading, and builders were cutting inventory and costs (see Chart Housing Oscillator above). The S&P 500 was near record highs in 2027. The recession would not officially begin until December, Bear Stearns, despite Jim Cramer's best efforts, would fail months later, and Lehman Brothers would collapse after that.
The lesson from the invisible hand, which subscriber appear to be bored with, is the sequence of the timing. Assets based on liquidity, such is Bitcoin turn down first, despite growing bold calls that price will reach the moon, and will be the best asset during the AI revolution and deflation. We discussed and timing in great detail in the Bitcoin Report. Bigger, more economically important assets, such as Housing, follow. Homes stay on the market longer, prices peak, builder economics deteriorated, cost-cutting intensified, and credit stresses spread BEFORE the financial system and LABOR market turn down.
Today is clearly not 2008. Lennar's operating position is far stronger, and much of its cost reduction reflects better purchasing, standardization, faster construction and land strategies. But the earlier stage of the cycle is precisely why the 2007 comparison is useful to timing.
Residential employment is weakening, housing-related suppliers are facing softer demand, smaller contractors are under greater financial pressure, commercial real estate faces refinancing challenges, and consumer delinquencies remain elevated in some categories. At the same time, nonresidential megaprojects and relatively stable headline employment can mask some of the underlying deterioration to keep the Economic Activity Composite (EAC) trending above zero. This is discussed in the Economy & Stock Report.
The key risk would be rising construction costs while housing demand remains weak. Builders would then face increasing pressure to sacrifice margins, reduce production or allow effective prices to rise. The significance of Lennar's 14% cost reduction, therefore, is not simply the size of the decline. It is that the reduction occurred alongside pressure on affordability, orders, margins, residential employment as long-term interest rates and borrowing costs rise.
The invisible hand is showing us that housing stress exists. The Housing Oscillator LTCO fell below 0 in 2024, and has remained largely below it for more than two years. Think the US and global economy will be immune to the message indefinitely? The EAC cycle, discussed in the Economy & Stocks Report, says no. Getting anyone to pay attention to the message before Jim Cramer starts talking about it, well, that's nearly impossible. We fully encourage full subscribers to watch all report updates, and partial subscribers to consider watching the Bitcoin, Housing, Economy & Stocks, US Bond, US Dollar, and other reports as soon as possible. The precursor to economic, financial, and household pain already exists. Bitcoin and the Housing stocks are warning us. Are you listening? The majority is not. They still believe the dollar rally is a joke, and Trump will fix it. A tough lesson is coming.
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