The Rodney Dangerfield Housing Market: No Respect

I don’t get no respect from anyone. Last week my house was on fire, my wife told the kids be quiet. You’ll wake up daddy.” – Rodney Dangerfield

Today’s housing market has done what few people expected and yet, like Rodney, “it don’t get no respect”. Many on Wall Street fear the future of this industry as we’ve risen to levels of homebuilding that we haven’t seen in a long time. Rather than looking at demographics, household financials and other data that points to a very bright future, they just call it crazy. They feel it’s a sugar-high phenomenon. Lastly, they think 50% higher homebuilding from here in the future is impossible. We will look at the data to explain that, as Rodney would say, there is no respect.

The worst of times for US housing was 2007. Everyone loved the story and believed it all to be true, for very poor reasons. There is no reason simpler than the US household debt service ratio at that time. This statistic is published by the Federal Reserve and tracks the amount of gross income that goes to debt payments of any form (mortgage, auto, credit card, etc.). Below is that data since 1980.

After watching US households get as over-levered as they had ever been, the negative pundits in 2008-2009 said that it would be incredibly tough to recover from those circumstances, because of the level of indebtedness. These economists were surely wrong. Instead, we recovered as we slowly cleansed the maladies from our gross income during the 2010’s. We’ve since taken that to a new level of financial discipline today that hasn’t been seen in over 40 years!

The same negative pundits have now turned their arguments toward the idea that the households of the US aren’t dynamic, much like they didn’t believe they were in 2008-2009. They don’t believe these same households will increase their borrowing from these depressed levels in areas like cars and homes. They use student debt and other factors as an impetus to be pessimistic. The economic success of the 1980’s and 1990’s was born out of households that had a higher percentage of their income going toward debt payments. Mortgages are always a big component in this data. Relative to 40 years, Rodney would say “it’s tough out there.”

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Disclosure: The information contained in this missive represents Smead Capital Management’s opinions, and should not be construed as personalized or individualized investment advice and ...

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William K. 2 months ago Member's comment

Itis difficult to respect an industry that only builds huge houses and expensive condominiums. Really, how can we respect the builders of monster houses?