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The US housing market has a major supply problem.
This chart, which comes to us from Bank of America Merrill Lynch's Michelle Meyer, shows the increase in housing demand beginning to really accelerate while supply still lags.
And this is a looming issue for the US economy at large.
BAML
On Monday, Conor Sen at New River Investments wrote about the coming affordability and supply conundrum soon to face the housing market, sounding something of an alarm on the prospect of a recession in the US developing over the next couple of years.
"My view is that the housing cycle is the business cycle, and on this basis 'potential output' should be much, much higher than it is today," Sen wrote.
"We've underbuilt housing, particularly single-family, for years, and Millennial housing needs will be immense for the next two decades. But because of how much damage occurred in the housing sector and how slow and long the recovery took, other industries absorbed housing sector resources. And now we're nearing overall US economic resource utilization levels that typically makes the Fed uncomfortable."
The basic problem posed by a tight housing supply is that it likely leads to continued upward pressure on home prices continuing a lack of affordability for first-time homebuyers.
This also keeps renters renting and, with rent inflation on the rise, potentially accelerate inflationary pressures already percolating in the US economy.
And this has big implications for Fed policy.
The outline here is that with housing prices taking off and business investment staying away from areas where it's needed - housing! - and moving into other sectors that are near full-capacity inflation will take off.
And so the Federal Reserve - while addressing dormant inflation for most of the last couple years - will then likely be forced to ramp rates higher and faster than they might've otherwise planned.
This will likely shock financial markets that have, to use Jeff Gundlach's phrase, been "daring" the Fed to raise rates.
And so you'll have a Fed tightening financial conditions faster than expected. You'll have a market adjusting to higher benchmark rates than expected. You'll have inflation in the economy running hotter than expected all while housing supply is lower than needed.
So: recession 2018, then?