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[ad_1] Tuesday’s report on new home sales came in as a miss of estimates and prior revisions were all negative. This data line confirms what we all know to be the case: The housing market, at least as it relates to construction, is in a recession.  What I have always tried to do with my economic work is to connect the dots or show a pathway to why something could happen. Since the summer of 2020, I have genuinely believed the housing market could change once the 10-year yield broke over 1.94%. However, for the new home sales sector, it would put their business model at risk. We talked about this in March, and even last year, when I wrote about the problem with the housing construction boom premise. “I don’t expect a boom in housing construction. Builders learned their lesson in the mid-2000s and understand that it is not in their best interst to create more residential real estate beyond the standard demand curve. They also learned their lesson quickly in 2018 as mortgage rates at 5% were too high for construction growth.” Mortgage rates have risen, and the builders have many homes under construction, so they’re going to stall things until they know they can sell their homes. This is why I raised the fifth recession red flag in June. In reality, everything looks normal as long as you know that the builders don’t build homes for society; they build homes to make money. I addressed this last summer in an article titled: Why we can’t build our way out of a hot housing market: “During the previous economic expansion from 2008 to 2019, the housing market was subject to the constant refrain of build more homes. Building more homes, it was said, would solve all sorts of social problems, from making homeownership more affordable to ending homelessness. “Today we are perhaps less prone to believing that a glut of new homes is the panacea society is waiting for, but the siren call to build more homes continues to be broadcast by a host of housing pundits and social do-gooders. The problem with this scenario is that social do-gooders don’t build homes; builders build houses, and they build homes for money, not to cure societal ills.” The previous economic expansion (2008-2019) had the weakest new home sales recovery; thus, we had the weakest housing construction cycle ever. That makes sense to me; builders missed sales estimates in 2013, 2014, and 2015. Then in 2018, they had a supply spike as mortgage rates reached 5%. In response, they stalled construction for 30 months. Today, rates are even higher. It is what it is: the housing dilemma we live with in America. If the builders need sub 4% mortgage rates to build and existing home prices are up near 20%, as Tuesday’s S&P CoreLogic Case-Shiller Home Price Indices report showed, it’s hard to see how we ever get out of this mess. New home sales From Census: Sales of new single‐family houses in June 2022 were at a seasonally adjusted annual rate of 590,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.1 percent (±15.0 percent)* below the revised May rate of 642,000 and is 17.4 percent (±11.6 percent) below the June 2021 estimate of 714,000 Today, new home sales are back to 2018 levels. The peak of the housing bubble was roughly 1.4 million in sales. At today’s level of 590,000 homes, the builders are in a different spot to deal with their inventory issues because they haven’t had a credit sales boom as we saw from 2002-2005. We are easily below the 2000 recession levels and back to 1996 levels in demand. Builders will manage their construction homes to ensure they don’t have too much product. Also, they’re hoping for lower mortgage rates, which helped them out in 2019.Census: The median sales price of new houses sold in June 2022 was $402,400.  The average sales price was $456,800.  There’s a savagely unhealthy housing market theme here, and my concern is home prices overheating, which can impact the housing market more than if price growth were stable. The hot home price party started in 2020, which wasn’t good. The builders had pricing power and used it well for profit margins. The consumer had to pay the price. This is how supply and demand works; the one thing that can change pricing power is higher rates. From Census: The seasonally‐adjusted estimate of new houses for sale at the end of June was 457,000.  This represents a supply of 9.3 months at the current sales rate. My rule of thumb for anticipating builder behavior is based on the three-month average of supply: When supply is 4.3 months and below, this is an excellent market for the builders. When supply is 4.4 to 6.4 months, this is an OK market for the builders. They will build as long as new home sales are growing. The builders will pull back on construction when the supply is 6.5 months and above.  As we can see below, the monthly supply has taken off once again. The builder’s business model is at risk, of course. However, we must be mindful of one reality that is different from the past: Only 0.83 months of supply is finished housing product. 6.22 months of supply is under construction 2.24 months of supply hasn’t even been started yet We should expect that builders won’t even bring a shovel to the dirt of the homes they haven’t started on yet — and they will slow the process down to ensure the homes under construction will be sold. In the past, lower mortgage rates have helped this process out for them, so they know what they’re doing here. As we can see, like everything with housing, nothing in 2022 looks like 2008. This is the builder’s biggest competition. They have taken advantage of the low inventory story in 2020 and 2021.NAR:

[ad_1] Are you worried about a surge in inflation? What about hyper-inflation? The prices of goods and services have been steadily rising, while the value of the dollar has been declining. This can be concerning for anyone who is looking to protect their wealth and make a profit. The CPI (Consumer Priced Index) soared to an increase of 9.1% from the last year. This is the largest increase in inflation the economy has endured since 1981. Small Shopping Cart With Cardboard Boxes In Front Of Increasing Dollar Graph On Blackboard As inflation creeps up, many people begin to worry about the state of the economy as a whole. The Consumer Confidence Index also fell to its lowest level in over a year. With the stock market being so volatile as of late, it’s no wonder people are worried about their investments. However, there are still some good investments out there that can help you hedge against inflation and make a profit. What Is Inflation? Inflation is defined as a sustained increase in the general level of prices for goods and services. It is usually measured as an annual percentage change. In the past, inflation has been caused by factors such as wars, natural disasters, and oil shocks. More recently, central banks printing money has also been a major driver of inflation. Consumers often feel inflation the most when they go to the grocery store and find that the prices of their favorite items have increased. Inflation can also have an impact on investments. For example, if you are invested in a fixed-income investment such as a bond, the value of your investment will decrease as inflation increases. This is because when inflation goes up, the purchasing power of the dollar declines. This means that it takes more dollars to buy the same amount of goods and services. As an investor, you need to be aware of how inflation can impact your portfolio and make sure that you are investing in products that will maintain their value or even increase in value as inflation increases. This especially becomes true in the distribution phase of your retirement when you are relying on your portfolio to provide income. I had many clients that began to feel the pinch of rising costs after they retired. Most were able to adjust their budgets accordingly but still felt the impact. What Causes Inflation? Inflation is caused by a variety of factors, but the most common is an increase in the money supply. When the money supply grows faster than the economy, it leads to inflation. This is because there is more money chasing the same amount of goods and services. Other factors that can cause inflation to include: Wars or natural disasters that lead to increases in the prices of goods Increases in oil prices Government spending more than it takes in through taxes Poor economic conditions How Can Inflation Affect My Financial Strategy? Inflation can have a major impact on your financial strategy. If you are retired or close to retirement, inflation can erode the value of your savings. This is because the purchasing power of your money will decline as prices increase. I’m sure you’ve noticed gas prices increasing lately. That’s just one example of how inflation can eat away at your savings. In addition, if you have debt, inflation can make it more difficult to repay what you owe. This is because the amount you owe will be worth more in real terms than when you originally took out the loan. “Inflation can be scary, but like any financial movement, there are winners and losers,” says True Tamplin of Finance Strategists, a popular financial education website. “During periods of high inflation, we should be doubling down on looking for where to invest because the dumbest place you can keep your money is in cash.” What to Invest in During High Inflation? The rise in food prices is a recurring problem for American consumers. The Consumer Price Index was up 8.6% on an annual basis in May 2022, compared to a year prior. It grew 9% to 8.1% last month. As inflation increases, it’s not as long and consumer sentiment about Inflation hits a record high, with 7 in 10 saying inflation is a problem. So, what can you do to protect your portfolio against inflation? Here are 9 of the best investments that can help turn a profit during periods of high inflation. 1. Gold and Silver Commodities are another inflation hedge as they tend to move inversely to the U.S. dollar when inflation rises. When the dollar weakens, commodities become more expensive and vice versa. Investing in commodities can be done through commodity-based ETFs or mutual funds, which offer exposure to a basket of commodities. Alternatively, investors can purchase futures contracts for specific commodities such as oil, gold, or silver. Gold and silver have been used as a means of exchange and store of value for centuries. In times of economic turbulence, these precious metals have typically maintained their purchasing power, making them ideal inflation hedges. Over the last ten years, gold has returned an average of 7% per year, while silver has returned an average of 10% per year. In comparison, the S&P 500 has returned an average of 14% per year over the same period which is higher than the lifetime average of 10%. Different ways to invest in gold and silver are through buying physical metals, mutual funds, or ETFs (exchanged traded funds). The popular gold ETF is the SPDR Gold Trust (GLD) and the popular silver ETF is the iShares Silver Trust (SLV). Company Name ETF Name Symbol Abrdn Plc Physical Silver Shares ETF SIVR ProShares  Ultra Silver AGQ Invesco  DB Silver Fund DBS Gold iShares  Gold Trust IAU World Gold Council SPDR Gold Shares GLD Abrdn Plc abrdn Physical Gold Shares ETF SGOL World Gold Council SPDR Gold MiniShares Trust GLDM Silver Invesco  DB Silver Fund DBS ProShares  Ultra Silver AGQ iShares Silver Trust SLV 2.

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[ad_1] For those of us in the business of analyzing the housing market, the past two years have been quite a ride. The market’s insatiable demand for real estate, combined with low interest rates and even lower inventory, created a feeding frenzy that drove insane bidding wars, sent home prices skyrocketing, and frustrated many would-be home buyers. And with the pandemic changing some of our traditional seasonal patterns, it’s been challenging at times for us to predict what would happen next. Now that the frenzy is over, we’re seeing a return to more normal patterns. Homes are taking price cuts at the typical level of about 33%, and more homes are getting relisted as a natural response to the cooling market. And as home sales slow, inventory is climbing quickly. Will we finally see an end to our years-long inventory shortage? As we roll into the second half of the year, here’s what to expect with inventory and prices into early 2023: 1. Inventory will climb through October, but don’t expect a tsunami. There are now 525,000 single-family homes available unsold on the market across the US. That’s the most we’ve had in almost two years, and 31% more than last year at this time. As mortgage rates spiked this year, buyer demand stopped abruptly and inventory has risen quickly. But inventory growth may already be showing some signs of decelerating. A month ago, national inventory was climbing by 6-8% per week. Now, we’ve been in the 3-4% growth range for each week in July. It’s early, but it may be a sign that sellers are not feeling compelled to list when they face uncertainty in the economic outlook. I do expect at least a few more weeks of fairly hefty increases in inventory this summer, so the spike is not finished yet. With that, the summer should peak with over 620,000 homes on the market and end the year with around 535,000. You can see the dotted line curve here as the forecast for the rest of 2022. If we see the dotted line keep climbing in October, that would signal the market is cooling more significantly than expected. When forecasting inventory for the rest of the year, one aspect to consider is how our immediate market may be pulling supply forward from the end of the year. You can imagine that sellers who were thinking of selling at some point this year are hurrying to list now — before they perceive the market will get even slower. If that is indeed happening, that would put a cap on inventory growth later in the year. I should note that when we talk about inventory forecasts for this year and next, what’s not visible in the data are all the exogenous variables. What happens if mortgage rates spike up? Or, if the economy tanks? These would obviously change the equation. But assuming we have some normal seasonality, 2023 will start with still fewer available homes than we started with in 2020. Supply is at its best in a few years, which is good for buyers, but it’s still going to be relatively tight for quite a while. Don’t expect a big wave. 2. Prices will remain flat. Prices are now past their seasonal peak. The median price of single family homes in the U.S. is $450,000.  The median price of the newly listed home rose to $408,000 this week, after dropping a bit last week. I mentioned that sellers may be pulling supply forward, worried that conditions will get worse later in the year. If that’s their state of mind, they’re also likely to discount the asking price just a little to be ahead of the competition right now. Price reductions are also climbing quickly but still in the normal range of price reductions. A little more than one-third of the homes on the U.S. market have taken a price cut in the past week. This number was at a record low just a few months ago, though, so the change is dramatic.  What we’re watching for is for the slope of the price reductions to start to flatten. In the fall, new listings price at a discount first so they don’t have to cut later, so we typically see a decline in price cuts starting in the fall. But that slope hasn’t rounded the corner yet, which implies there’s still a lot of adjustment that sellers need to make. I expect that we’ll be at 40% with price reductions before the end of the summer. Using the prevalence of price reductions as a proxy for organic levels of demand in the market, that’s a strong signal why we’re likely to see no home price appreciation for 2023. The good news is that opportunities for buyers are finally opening up. We can see that demand is still there for the homes that are priced properly. But, it sure looks like, while inventory is climbing, we’re not going to have a big wave of inventory next spring. So home buyers should plan accordingly. Mike Simonsen is the Founder and CEO of Altos Research. The post Mike Simonsen: “Inventory is climbing, is the supply crisis over?” appeared first on HousingWire. [ad_2] Source link

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