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Posted by: Michael Mandel on June 24
Pursuing a theme which continues to interest me, I contrast the continued strong performance of housing construction with the weak durable goods number this morning. New orders for nondefense, nontransportation capital goods fell by 2.3% in May. Meanwhile, May housing starts are still running at an annual rate of over 2 million.
Here’s the thing—housing is much more interest-sensitive than business investment, especially spending on technology. Moreover, the expected rise in housing prices makes housing investment effectively free (or even better). To the degree to which there is a competition for capital, we would expect the housing boom to be starving other sectors.
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