Housing and autos are two of the most important parts of the US economy. According to the National Association of Homebuilders, home construction, remodeling and brokerage represents about 3-5% of GDP. The Center for Automotive Research estimates that the auto industry averages 3-3.5% of GDP. While both industries have been meaningfully impacted by COVID-19, prospects for a recovery and sustained growth the next several years are quite good.

In the near-term, inventories for housing and autos are at record lows. The Jefferies US Housing and Auto Inventory Index has reached a new post-war low as seen in Exhibit 1.

Exhibit 1: US Housing and Auto Inventory (Index = 100)

Source: Bloomberg, Jefferies

Demand has recovered in surprisingly rapid fashion, helped by low interest rates, monetary and fiscal stimulus, demographic shifts and a potentially massive shift in consumer preference for suburban living. Supply has been held back by the difficulty in restarting complicated supply chains and a lack of existing homes being listed by consumers who do not want strangers touring their home. The resulting lean inventory position should result in multiple years of benefit from restocking and rebuilding along with strong pricing power for manufacturers and retailers. With millennials now in their prime home-buying and child-rearing years (see Exhibit 2 below), demographics should sustain elevated levels of demand for housing and autos, even if the COVID-driven desire to leave crowded urban centers proves temporary.

Exhibit 2: Projected U.S. population Aged 30-40

Source: US Census Bureau’s 2017 Population Projections: Low Immigration Scenario; Compass Point Research