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1/7 This analysis concludes by saying "something is seriously wrong with the housing market." Not based on this chart. tl:dr - New home sizes are falling to account for this spread falling below zero. Adjust for that, and there is nothing to see here. Short 🧵 2/7 Same chart with prices in the top panel. It is correct that the new home premium (green) above existing home prices (blue) has collapsed from 38% in 2013 to below zero today (the lowest in 54 years). Why? See new home prices (orange), they stalled. https://t.co/kCLume1QDi 3/7 Here is the average home price (orange) and the home's size (blue). The reason prices are falling is that builders are constructing smaller homes. But as the bottom panel shows (green), the price per square foot is as high as ever. No bear market, just smaller homes. https://t.co/TSYsPKVAkV 4/7 Two more things to keep in mind about new homes. They account for just 16% of all homes sold (green), or 800k sold a year (orange), versus 4.1 million existing homes (blue) sold over the same period. https://t.co/MLvhmfkoB6 5/7 85% of all new homes are built in the South and West. 15% are built in the Northeast and Midwest. Contrast ... 40% of the US population lives in the South and West (growing). 60% of the US population lives in the Northeast and Midwest (shrinking). https://t.co/tMKV1GAZdX 6/7 This is not to say there is no housing problem. There is, and it is a big one, PRICES ARE TOO HIGH! They need to come down, because first-time home buyers cannot afford starter homes, as this chart shows. https://t.co/ph7Gp9kSxE 7/7 But, as I explained in this thread a few days ago, 86 million homebuyers are terrified of lower prices. So, we talk all day about affordability, and never do anything about it. And this will worsen the K-shaped economy. https://t.co/w2SUzZ6D4D Bonus Lower mortgage rates will lower the monthly payments, but this will only give builders and home sellers room to raise prices. It will not solve the affordability problem. Only increased supply will ... meaning the 86 million homeowners need to accept lower prices.