Another Housing Bubble?

This weeks view from outside my 'office'

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3 RANDOM THOUGHTS

1.INVESTING IS STRESSFUL

Active investing is joy and misery all rolled into one. Short of sounding like a degenerate gambler, even when you win, you never truly win.

You could always have won more if you had sized the position 'correctly', stayed in the trade longer or got out on time. That insatiable appetite is just a reality of the human condition, I guess.

One thing that seems to get overlooked when people think about starting investing is the hidden costs that come with devoting so much of your time to studying the market.

If you're anything like me, it will occupy the vast majority of your mental real estate.

Don't overlook this when fantasising about your next big win.

For most, simply investing in a long-term ETF portfolio via a direct debit each month removes the stressful decision-making process.

The Pareto principle remains undefeated. 80% of the upside for 20% of the effort.

Not everyone has to play the same game. Find the one that works for you.

2.A HOUSING BUBBLE?

On a monthly basis, house prices dropped 0.2% in November. Prices are now about 2.5% below their spring 2022 peak and are expected to fall further.

U.S. House Prices Fall from All-Time Highs

It now appears the rental market is suffering from contagion effects. New lease demand cratered in the second half of the year, and was negative for the full year for the first time since 2009.

In the US, rents have fallen 3% in the last three months on a seasonally adjusted annualised basis.

This is also being reflected elsewhere as the housing market undergoes a global slowdown.

As the stand-off between buyers and sellers plays out, I expected a continued decline in prices, especially as a record number of new housing is set to come to market in 2023. Thanks to housing delays, you have two years of housing starts hitting the market at the same time.

Record Number of Housing Units Under Construction as a Result of Delays

With that said, the generational under-supply means there are still far too many buyers in waiting. This puts a floor on how far prices will fall.

A 10% correction remains my base case.

3. AIRLINES TAKE OFF

In what is surely unsurprising news for anyone who has purchased a plane ticket recently, profits have soared for the airline industry in recent months, with Delta’s revenue now at all-time highs.

Delta Airlines Quarterly Revenue

Markets have reacted favourably with Jet Blue up 30% this year alone (and we are only 19 days in)

Jet Blue Stock Price - YTD

For me however, while the bargain prices are enticing. Soaring costs, layers of debt, the constant exposure to the elements (oil, weather, pandemic etc.) and the ultra-competitive nature of the industry means that I will be steering clear of airlines for now.

I’d file them with ride share companies and BNPL names under ‘ones to avoid’

2 GOOD / 2 BAD

NETFLIX

The streaming giant counted nearly 8 million new subscribers, way more than its 4.5 million forecast. Earnings did slip below expectations, but as always with Netflix, the market only seems to care about its subscriber growth.

A password-sharing crackdown and a new ad-supported streaming offering should help to bolster numbers over the coming quarters. Still, with 80% of Americans already paying for at least one steaming services, their pool of potential customers continues to dry up.

For me, the mammoth growth story is over. Now it becomes all about Netflix’s ability to monetise their offering and decrease their content spend to increase their profit margins over time.

Read my entire view on Netflix as a potential investment here.

MARRIAGE

This week was my first wedding anniversary

I’ve never been much of a romantic soul.

To put this into context, I proposed to my now-wife in a Borat accent. Don’t ask; I just panicked. Suffice to say, me roaring ‘WILL YOU BE MY WIIIIFE’ in a dodgy Kazakhstan accent probably wasn’t the passionate monologue she had always envisaged.

But a lot has changed this year, and she has managed to pull me through. Without her, I would have been lost, and it got me thinking.

I reckon who you marry is probably the most important life decision you will ever make.

Marry the right person, and they will motivate you to become the best you can be every day. Marry the wrong person, and It’s a lifetime of resentment as you both drag each other to the bottom.

Choose wisely. If it’s not a f*ck yes, it’s a no.

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LABOUR

While the overall U.S. labour market remains strong, jobs tied to temporary labour have been evaporating for five consecutive months.

This has some economists concerned about the labour market as temp jobs are considered a leading indicator.

For example, in the US, temporary employment effectively peaked in March 2007, but total employment didn't peak until January 2008.

This makes sense. When demand cools and businesses need to make cuts, they tend to cut temp workers before letting go of full-time employees.

The Labour market as a whole is still strong, but an interesting data point to keep an eye on.

The Fed seems hell-bent on provoking a cool-down in the labour market. Whether or not they can slow the car down without crashing it into a wall remains to be seen.

SNOW DAYS ARE OVER

Social media was littered with images of picturesque snowcapped mountains this week, but you just can’t enjoy it as much anymore.

I was left lamenting the good ole days where a few inches of snow meant you couldn’t possibly make the Tom Crean-esque expedition to the office.

This whole work from home carry on has robbed us of our innate right to call-it-off at the first sight of snow.

Adulting is hard.

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