Is this a signal that CPI rent inflation might cool off as well? CPI core inflation outside of rent is already on its way down to 1%. If rent inflation joins it, then core inflation would start moving down away from the Fed's target levels.
This certainly isn't due to overbuilding. Housing starts have leveled off in the past year at levels typical of recessions. This seems like a potential sign of declining demand.
I am fairly sanguine about the potential for a deep contraction now, but on the other hand, the answer to that last question plainly seems to be, "not very", in which case I do worry that the downsides here are bad.
I think the long term play these days is to be long on homebuilding with a long bond position as a hedge. But, I wish there was better visibility about the short term. A post-inauguration announcement about weakening some of the more damaging aspects of Dodd-Frank would be great. In some ways, the direction it looks like things are going is somewhat positive - better than I had expected. But, it's not so great that tactical positions are so dependent on political developments, even if that is necessary to a certain extent.