ROAD Act A Tailwind To 2028-2030, Offset By Mix, Rates & Cost Inflation

Research evidence excerpt

ROAD Act A Tailwind To 2028-2030, Offset By Mix, Rates & Cost Inflation

ficantly alter

the link between consumer uncertainty and reluctance to purchases a new home (cf. here). The

benefits of the bill could be delayed if high mortgage rates and builder cost inflation disincentivize

projects. We estimate that Congress needs to reduce the effective purchase price of housing by

~10% to match the direct impact on homeowner finances of a 100bps rate cut, and by 12%-15% to

also match the indirect effect on buyer psychology. A 100bps rate cut tends to lift existing home

sales by ~53k and new home sales by ~70k with a ~10 month lag. We estimate housing demand

shifts by -0.4x the shift in price in the short run, and by -0.9x in the long run. Higher prices, however,

motivate supply: we estimate permits rise by 0.5x the rise in prices in the short run and by 1.5x in

the long run (3-10 years)--though in some regions regulations zero out the supply elasticity. If the

housing bill works, it could improve the near-term supply elasticity to 0.8-1.0x. The indirect effect

would be a weakening of the household wealth effect as a driver of GDP growth in 2030-2040. As an

offset, we estimate the supply elasticity to builder input costs at -0.6x if builders pass-through costs

100%, and -1.1x if builders have to absorb the cost inflation. In an integrated model, we estimate

(R2=28% since 1987) YoY log-change housing starts have a -0.047 coefficient with mortgage rates,

-0.31 with construction costs and +1.8 with log home prices. Taking into account the interactions

and lags increases the R2 to 56% (Chart 1).

Laurence Alexander * | Equity Analyst

+1 (212) 284-2553 | lalexander@jefferies.com

Daniel Rizzo * | Equity Analyst

(212) 336-6284 | drizzo@jefferies.com