Well, we knew it.
My readers surely did if they followed my analysis of the 18.6-year real estate cycle.
We’re in the late innings of the second stage. The melt-up phase.
The stops are slowly being pulled.
Interest rates are no longer rising at the same pace they did a year ago…
Inflation is slowing down…
Markets are entering the “greed” stage. Institutions call it the “risk-on” regime.
And risk is on.
But we aren’t taking any risks. The cycle says that the next few years will be bullish for most assets… and my readers will be prepared for when it turns again.
Learn the Signs of the Cycle
The market was surprised that the latest housing numbers were better than anyone anticipated.
But I wasn’t. In fact, we’re up 30% in two months on a homebuilder stock in my The Signal newsletter. Because it’s my life’s work to know what parts of the market do well at each stage in the cycle.
From Bloomberg:
Beginning home construction jumped 21.7% to a 1.63 million annualized rate, the fastest pace in more than a year, according to government data released Tuesday. The pace exceeded all projections in a Bloomberg survey of economists. Single-family homebuilding rose 18.5% to an 11-month high.
Why were they surprised?
Because they hold on to the “interest rates are high, recession is coming” narrative.
They focus on the textbook scenario. House prices will go down because of the high interest rates. A recession will push unemployment up. People won’t be able to afford their houses.
House prices should be declining now, and they will in the future.
Well, the reality disagrees.
Resale inventory is low. There aren’t many existing houses available for purchase. So what are people doing? They’re building from scratch.
Which means housing starts are rising – even though, according to “accepted” wisdom, they shouldn’t be.
This Is How the Cycle Works
Investors who bet on higher housing prices are making bank.
A home construction ETF is up 35% this year.
It’s ahead of the S&P 500 with its 14% year-to-date return.
While everybody else has been focused on the broad market and its tech darlings, the housing market has staged a proper rally.
The cycle tells me that the melt-up will continue for the next few years… After that, we’ll be due for a crash of massive proportions.
And at that time, nobody will be talking about it. “Experts” will be surprised, yet again. Because as I just told readers of my Postcards From the Cycle, the experts just guess. (Paid-up subscribers can catch up here.)
This is how the cycle drives the markets. Beyond the headlines, it works quietly.
Learn the signs, and don’t ignore it.
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
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