Despite a number of negative economic forces, the U.S. economy continues to remain on a growth trajectory. In recent years and months, these forces have intensified due to the global business cycle turning lower, President Donald Trump's trade wars, and a secular deceleration in the Chinese economy which has impacted global demand.

One powerful factor has been the strength in housing. The housing market continues to recover from its previous bubble. In some regional markets, it has already exceeded prior highs. By most metrics, there is more ground to be made up, and there is potential for even more strength if household formation rates normalize or overcompensate to make up for the decade and a half it's been depressed.

in a broad sense, the supporting dynamics behind the housing bull market are the strength in the jobs market, low mortgage rates, and years of underbuilding relative to population growth. Recent data confirm the strength in housing and indicates acceleration as housing starts in January were up 21.4% compared to January 2019. This marks the highest reading since the previous cycle peak. Previous months were also revised higher.

Strong Stock Market Performance

Housing stocks have also been one of the strongest performers in the stock market since the last major market bottom in December 2018. The housing ETF (XHB  ) is up more than 60% since then, while the S&P 500 (SPY  ) is 42% higher over the same period. Within this group, outperformers include homebuilders, materials stocks, and other housing-adjacent companies like Sherwin-Williams (SHW  ), Zillow (Z  ), and Radian Group (RDN  ).

In the short-term, housing has strong momentum. Further due to the upcoming election and uncertainty swirling around the coronavirus outbreak, it's likely that interest rates remain low and could be cut even more.

Long-Term Supply, Demand Imbalance

On a longer-term timeframe, housing's favorable supply and demand dynamics are supportive. The supply of housing is at nearly record lows. In the last decade, less than a million single-family homes were built per year due to the oversupply and overbuilding from the previous peak. This supply has been exhausted and now new homes need to be built. Demand is supported by strength in employment, wages, and low mortgage rates. Household balance sheets are also quite strong as people have not leveraged up during this cycle.