New Home Sales at Strongest Level in Past 25 Years


The Monthly Supply of New Home sales was reported at 3.9mos . This represents relatively strong Demand vs. Supply and at under 4.mos this number is at the level equaling the strongest housing market in the past ~25yrs. Monthly Supply at this level has always been good for a higher Residential Construction Employment trend. Strong economic demand is what drives housing and markets.

screenshot 139 624x374 Housing Trends Mean More Jobs New Home Sales

The Mtg Bankers Assoc did a study which showed a 7-8x multiple impact of Residential Construction Employment in the rest of the economy. One can estimate that Residential Construction Employment should rise by 500,000+ the next 4-5yrs to return to previous levels. This would translate into 3.5-4mil additional jobs throughout our economy for a total of 4-4.5mil new jobs in a Single-Family Housing market at full recovery. As noted many times, this is not a dramatically rapid process, but one which develops over years.

Gates Capital Returns 32.7% Tries To Do “Fewer Things Better”

Gates Capital Management's Excess Cash Flow (ECF) Value Funds have returned 14.5% net over the past 25 years, and in 2021, the fund manager continued to outperform. Due to an "absence of large mistakes" during the year, coupled with an "attractive environment for corporate events," the group's flagship ECF Value Fund, L.P returned 32.7% last Read More

This time around the impact of the Fed keeping longer term rates down by conducting QE2 and QE3 have stifled normal bank lending as low mtg rates prevent banks from having the normal lending spreads required to offset the risks associated with lending to individuals with FICO scores less than 760. But, investors have adjusted recently having failed to have their portfolios benefit from a collapse in the US$ and rapid rise in inflation, gold, oil and etc., we now see funds moving into equities and away from commodities and fixed income. Yes, the US dollar remains relatively strong and inflation continues to fall. As investors shift portfolios to capture the strong uptrend apparent in equities they cause rates to rise, bank spreads to widen and mtg lending to accelerate. I encourage investors to think of this as the normal progression of economic expansion.

As investors shift portfolios to capture the strong uptrend apparent in equities they cause 1)-rates to rise 2)-bank spreads to widen and 3)-mtg lending to accelerate.

This is all good for higher economic activity and higher equity prices in the months ahead. I remain quite positive and estimate that we should experience a general rise in equity prices lasting ~5yrs. The better asset classes at this point in the investment cycle are in my opinion US&Intl LgCap with smaller positions in SmCap and Natural Resources. I do not recommend EmgMkt, REITs or Fixed Income exposure but for special situations

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.
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