Location Strategy Top 10 Chartbook

Before we start, Soft Landing vs Hard Landing:

• A soft landing, in economics, is a cyclical slowdown in economic growth that avoids recession. A Soft landing may also refer to a gradual, relatively painless slowdown in a particular industry or economic sector.

• A hard landing occurs when slowing down or stopping expansionary macroeconomic policy precipitates a stock market crash, financial crisis, or a collapse of investor confidence. Due to recognition, response, and implementation lags in macroeconomic policy, these events can spiral into a general recession too quickly for policy makers to mount an effective defense. the more dependent the economy has become on fiscal stimulus or easy money, the more the more difficult it becomes to wean off of expansionary policy ,and the more vulnerable the economy becomes to a hard landing due to even minor checks on expansionary policy.

• The table below shows what happens to the economy during hard and soft landings, followed by a chart of historical hard and soft landings. We’ve had a lot more hard landings, and a bottom in housing is frequently occurs during a hard landing.

• The upcoming recession looks relatively mild, but we know as well as any one even the mildest storm can produce wildly unpredictable and extensive damage. Let’s hope we are all “vibing” next spring.

Single-family building permits rose for the fifth consecutive month to 922,000 units SAAR, the highest level in a year. Implies recent drop in single-family [starts] will be temporary. Recovery over the summer.

US housing affordability deterioration has been more severe than in other advanced economies. Driven by increased house prices and rising interests. Income growth has not kept up.

Consumers Expect House Prices to Increase over the next 5 years.

Mortgage delinquency rates are at record lows. Here is a look at the highest and lowest delinquency rates by metro area.

Leading Indicators are forecasting recession. Location Strategy believes a relatively short national recession is likely in late 2023 and early 2024, but its effects will be largely blunted in Texas by the continued inflow of people and companies from other states - a flow which may be accelerated by more severe conditions in the states they are departing. Texas’ outcome will largely depend on continued in-migration and how long banks are restricted from lending.

Credit growth continues to slow and credit conditions continue to deteriorate.

Inavailability of debt is driving down CRE prices. CRE property prices are currently down 12.1% in the 10 months since their peak. Morgan Stanley expects a peak-to-trough (18-24 months) decline of 27.4% in prices.

Consumer expectations, job losses, building permit declines are all contributing to the recession forecast.

White collar share of employment is the highest it’s been in 40 years (excluding pandemic) but the proportion of higher-income households worried about making debt payments is rising anyway.

Quit rate trends are consistent with unemployment rates in the 4-5% range. Unemployment presently is 3.6%.

This is pointing to a soft landing.

The duration of economic cycles has progressively increased over the course of the past century

While they are declining, US birth rates are not declining as quickly as most of the rest of the world.

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