Inflation continues to moderate. Shelter inflation continues above 3% and core CPI excluding shelter continues to move around 1.5%, leaving total core inflation at just above 2%.
Over the past 5 months, however, while shelter inflation has remained above 3%, core CPI excluding shelter has increased by only about 0.3%. That's about 0.73% annualized.
I am sort of in wait-and-see mode. It seems like it is just a matter of time before the Federal Reserve sees some mixture of measures that entices them into rate increases that create a downturn. I suspect it will be a relatively weak downturn without much of a leading decline in homebuilding, since that industry is already so weakened.
I don't see a lot of speculative opportunities in that context. I think there is an unusual correlation between homebuilders and interest rates, where rising rates will correlate with housing growth. This is because rates aren't the constraining factor in housing expansion. So, there might be some hedged positions that have positive risk/reward balance, combining high income positions that will decline in a rising rate environment with positions in high beta homebuilders. Something like a long exposure to NLY together with long exposure to some homebuilders.
As always, for those who have the ability, highly leveraged direct ownership of low-priced rental housing seems like the most lucrative risk-adjusted way to earn profits in this environment. Whether through income or through capital gains, it seems like those properties have significant upside with little downside.