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In general, I think politics are wildly overrated a source of investing opportunities, particularly elections. Promises are often made by politicians but rarely fulfilled and in a three-tier system like the US, it’s rare to get enough alignment to craft game-changing policies.
At the moment, Kamala Harris is leading Trump 55-45 on PredictIt and she recently outlined proposals on home building. I think there is a decent consensus around the need to build more homes in the US, so there is an opportunity to do something even if Democrats fail to win the House and/or Senate (I assume Senate will be Republican almost under any election outcome).
Here is what she has proposed:
(1) the construction of 3M new housing units; (2) a tax incentive for
homebuilders building starter homes; (3) a $40B innovation fund for
local governments to build housing; and (4) $25k in down-payment support
for first-time homebuyers, provided rent was paid on time for two
years.
She also spoke about removing zoning restrictions at all levels.
If most of that gets done, it will move the needle.
But the most-effective lever is interest rates. It’s increasingly clear that we’re back in the same disinflationary dynamic as prior to the pandemic and I think that will be underscored as fiscal stimulus fades (from a deficit of 7% of GDP) under almost any election outcome in the US.
I don’t take that for granted but so long as spending at least stays where it is (hopefully a safe assumption) then the Fed is on its way back to 3.00% Fed funds with risks to the downside in any slowdown.
To summarize:
1) A plan for subsidies
2) Tax breaks for builders
3) More momentum for zoning reform than ever
4) Public desire for home building
5) Bi-partisan consensus on increasing home building
6) Interest rate cycle has peaked
That’s a compelling setup. It’s also not some kind of secret. Home builder stocks have done very well at a time when they would usually struggle.
XHB ETF daily
The opportunity right now I think is in housing-adjacent trades and sectors. Think: lumber, building materials, mortgage refi, land.
I’m sure there are others and I also expect it will ultimately be a tailwind for the US because where there is such a strong consensus and the US gets focused; it can get things done unlike any other country. At the same time, I see some bigger headwinds for the dollar so I certainly wouldn’t make this trade in the FX market.
