Inflation Keeps The Housing Market Afloat — For Now

people still enter the housing market despite rising interest rates.

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At the end of last year, I made some predictions about the housing market in 2023. Well, here we are, six months into the new year and how are the predictions? I spoke with economist Kathryn Rooney Vera, Chief Market Strategist, StoneX and we had a freewheeling conversation about the housing market and I will combine her observations with an evaluation of mine from last year.

Rooney Vera recently joined StoneX as chief market strategist, and he regularly appears on television and elsewhere sharing his knowledge and trying to explain broader economic trends.

StoneX is a Fortune 500 financial services company with execution, clearing and advisory services in commodities, and capital markets. What will happen to housing this year and next, as the economy tries to reset from Covid-19, will be critical to understanding what will happen to people who earn 50% of the median income, households that most affected by higher prices and job losses.

Inflation Continues High, Fed Responds Aggressively, Recession Continues

This is the first scenario that I suggest will happen this year. If this happens, I think we will be talking about the beginning of another housing collapse close to what happened in 2009. The Federal Reserve raised rates three times.

The Fed has raised rates three times by 2023.

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But the increases are not drastic but incremental. And inflation decreased according to the Department of Labor, from 6.5% in December last year to 4.0% in May of this year. Whether this is in response to changes in rates or something else is going on is unclear. The scenario I described did not happen. However, it appears as if inflation is slowing down.

Inflation Will Decrease, Fed Will Back Off, Short and Shallow Recession Will Come

Based on the steps I quoted, this is probably what is currently going on. I said last year, that “even in this scenario, there is a kink in the housing production hose due to the recent increase in interest rates.”

Rooney Vera suggests that it might be true.

“The residential single-family home and condominium real estate market suffers from a significant shortage of properties for sale mainly because 92% of property owners have mortgages with less than 6% interest rate, 82% under 5% and 62% under 4%. When that compares to the 6.77% average interest rate from last week it tells us that these property owners will avoid selling unless there is a real essential

Lagging Indicators Overstating Inflation, Fed Backing Off, No Inflation or Recession in 2023

The other thing I thought before was that maybe a major correction could be completely avoided in 2023. That seems like a possibility too. Rooney Vera points out that there are “1.8 jobs per person” and consumer confidence remains high with “5% job growth.” In my discussion with Rooney Vera, we both agreed that the momentum of inflation remains with people who work, are optimistic, and spend money.

Surprisingly, general talk of inflation, rising rates, and a Fed-induced recession doesn’t seem to be doing much to boost housing demand. . I quoted this paragraph recently from a market analyst who wondered if the housing market had “hit rock bottom.”

“Given the circumstances, perhaps the most interesting recent economic data is the release of housing starts data from the Census Bureau, which shows that housing starts are increasing from an annual rate of 1.34 million in April to 1.63 million in May. That 27.1 percent jump is in contrast to most recent readings in the housing market, but may reflect a lack of inventory.

In retrospect, it’s clear that the nightmare scenario I thought would happen – rates go up, people pull out of the housing sector – hasn’t happened yet. Instead, there is still so much money in the economy that buyers don’t seem afraid of higher rates. Rooney Vera, I think, agrees with me that we do not see a recession in 2023. The heat from inflation continues and this means that the demand for housing, especially to buy will continue.

I asked Rooney Vera about Covid and how many things are still unresolved from the effects of the pandemic on the economy and on people’s habits and assumptions.

“[This is about] more than Covid. There are fundamental demographic changes. There are generational differences. There is a change in the work structure. ” He also cited “massive intra-state migration.”

I have already pointed out the changes in housing that have been seen by people who avoid living in the urban center, instead preferring larger houses in remote areas due to the spread of working from home. For people with low incomes, especially in the service sector, labor shortages seem to drive higher wages and more jobs, meaning people can choose to work closer to where they live.

However, I consider the purchase of a single-family home today with the same skepticism as I would an invitation to climb aboard a submarine to view the wreck of the Titanic. Bad idea. The correction is coming. What we can see is that all the money that has been flushed into the economy to maintain if from a depression in 2020 from the interventions of the Covid, still awakens all human behavior with the possibility of continuing to heat those economy. But the money flush is unsustainable and at some point, the punch bowl disappears from the party. For people with low economic income, the best thing to do now is probably to save as much money as possible; it will be more than a year from now.

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