U.S. Housing Market Trend Forecast Analysis (2/3)
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The Market Oracle
Sun 6/16/2019 5:59 AM
The Market Oracle Newsletter
16th June 2019 Issue # 16 Vol. 13
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U.S. Housing Market Trend Forecast Analysis (2/3)
Dear Reader,
This is part 2 of 3 of my US housing market analysis that concludes in a detailed multi-year trend forecast where this newsletter includes analysis in bold
Current State
Momentum Analysis
US ECONOMY - GDP
Unemployment
Inflation
Producer Prices Index
Yield Curve
US Debt
QE4EVER!
DEMOGRAPHICS
US Home Builders Index (XHB)
US Housing Market Real Terms BUY / SELL Indicator
US House Prices 2019 to 2021 Trend Forecast Conclusion
Peering into the Mists of Time
However the whole of this analysis has first been made available to Patrons who support my work:
https://www.patreon.com/posts/us-house-prices-26484438So for immediate First Access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month.
https://www.patreon.com/Nadeem_Walayat.
US House Prices Momentum Analysis
The US housing market since early 2015 had been trundling along nicely on a momentum of between 4% and 6% per annum. However as of the most recent data that trading pattern has been breached with momentum falling to +3.2% as a consequence of outright falls in US house prices over the past 3 months. Therefore given the trend trajectory it is highly probable that US house prices are now trending towards 0% house price inflation and may even briefly go negative, which I am sure will send alarm bells ringing at the Fed, as it would fear that its banking brethren are about to feel some pain, and we all know what happens when the banks start to feel pain!
So at this point I am discounting negative house prices, apart from perhaps a minor temporary dip below zero to say -0.3%. Nevertheless it does appear that US house prices in momentum terms are going to have a rough 2019, and will be lucky to end the year with a net gain, though given that this is a BULL MARKET probability should favour another positive year for US house prices, just that its not going to be what people have grown accustomed to. perhaps just a 1.5% gain by the end of 2019.
What about 2020?
So 2019 will in effect be a correction against the trend. which implies that 2020 should see a resumption of the trend and thus a return to the momentum trading range of +4% to +6%. With probability favouring towards the lower end of the range, we may even see an end of year dip in momentum to below 4% say around +3.8%
US ECONOMY
GDP
The US economic fundamentals appear good as real GDP is rising at an annualised rate of +3.2% up from +2.6% a year ago. Whilst not a boom is still definitely not deflationary so supportive of house prices as the economy continues to chug along and thus implies US house prices should revert towards the 4% to 6% trend.
US Unemployment
A stable strong economy can further be seen in the unemployment statistic of just 3.8% marginal above the low of 3.7% and off of a recent high of 4%. As long as unemployment stays stable at around 4% then this should be supportive of house prices going forward.
US Inflation and House Prices
Official US CPI inflation remains marginally below the Fed's 2% target at 1.9%. Generally where house prices are concerned the higher the inflation rate the better as long as the economy is growing. Nothing much screams out from this chart other than at 2% inflation on balance is supportive of house prices.
Producer Prices Index
PPI, a leading indicator of economic activity shows that the US economies growth spurt to 3.2% may prove to be short lived, warning that a year from now the US economy will likely be a lot closer to 2% GDP than 3% GDP. In terms of house prices, then it confirms the current downtrend in momentum towards zero.
Yield Curve
The yield curve (spread between 2 year and 10 year US bonds) continues to flirt with inversion, currently standing at 0.23%. Clearly the housing market is not comfortable with an inversion given the slowing trend since 0.5%.
Since the near inversion during December, the Fed has clearly implemented some measures to PREVENT inversion, in attempts at bolstering market sentiment. And given that the fact that US inflation is below 2% then that gives the Fed some room act by CUTTING INTEREST RATES, rather than the consensus view of further Fed rate hikes.
US Debt
The US debt mountain continues to balloon, with Trumponomics pushing it to $22 trillion. With the annual 'real' budget deficit of about $1.2 trillion (i.e. add $400 billion to the headline deficit figure) with the real deficit set to hit $1.5 trillion for 2019 ($23.5 trillion). And one can only imagine how far it will explode when the US actually enters into its next recession, maybe in 2021, 2022?
So what does the US economy suggest for US house prices. We'll lets discount there being a recession in 2019 and 2020 which would thus suggest rising US house prices for both of these years. However the analysis is resolving towards an US economic slowdown where we could see the US economy nearer to 2% than 3% by the end of the year. Economic activity dampened by the trend in rising unemployment which I am sure the Fed will counter by LOWERing Interest Rates and printing more juicy QE asset price inflating money. And as houses cannot be easily printed then this 'should' be supportive of house prices as long as the US economy doesn't actually tip into a recession for which currently there is little sign of, apart form bonds continuing to flirt with a yield curve inversion. Whilst of course there are continuing negative consequences of Trumps TRADE WAR!
QE4EVER!
A reminder folks that regardless of Fed propaganda and what you read in the mainstream press QE is 4 EVER! Once it starts it doesn't stop. As I iterated 2 months ago in my stock market analysis at the start of March (Stock Market Trend Forecast March to September 2019)
So why has the the stock market soared, what is that the stock market knows that most commentators and economists fail to comprehend? We'll for one thing there are the dovish signals out of the Fed which go beyond a pause in their interest rate hiking cycle in response to a subdued inflation outlook. Similarly the worlds other major central banks have their own reasons to avoid rate hikes, most notable of which is the Bank of England that has been busy propagandising the prospects of a NO Deal Brexit Armageddon in attempts to scare Westminister into avoiding EXITING the European Union in anything other than an ultra soft BrExit.
So on face value the stock market is clearly discounting not just a more accommodative interest rate environment but that QE REALLY IS FOREVER! Once it starts it DOES NOT STOP! As evidenced by the Fed's balance sheet first having exploded from about $800 billion to over $4.5 trillion, all to bailout the banking crime syndicate by inflating asset prices such as housing and stocks so as to generate artificial profits for the central bankers banking brethren. But none of this news, for I have written of it for a good 10 years now that QE will never stop as the worlds central banks will repeatedly expand QE to monetize government debt.
So I would not be surprised that WHEN the next crisis or recession materialises, QE will resume, by the end of which the Fed balance sheet will likely have DOUBLED to at least $8 trillion. And it is this which the stock market is DISCOUNTING! Just as has been the case for the duration of this QE driven stocks bull market that clearly paused during 2018 in the wake of mild Fed unwinding of its balance sheet. So forget any lingering Fed propaganda for the continuing unwinding it's balance sheet, the actual rate of of which has slowed to a trickle and thus we are probably near the point when the Fed ceases unwinding it's balance sheet because as I have often voiced that once QE starts it does NOT STOP!
So whatever form the NEXT crisis takes, the Fed will be at hand to print money and double its balance sheet, as it will periodically continue to supports asset prices such as housing which cannot be printed. We'll not until we see start seeing house building 3D printing drones emerge from the machine intelligence mega-trend that will fly around in swarms and erect designer houses anywhere on the planet.
U.S. House Prices Analysis and Trend Forecast 2019 to 2021
The whole of this analysis has first been made available to Patrons who support my work:
https://www.patreon.com/posts/us-house-prices-26484438So for immediate First Access to ALL of my analysis and trend forecasts then do consider becoming a Patron by supporting my work for just $3 per month.
https://www.patreon.com/Nadeem_Walayat.
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