[Charts] Housing Bubbles and Inflation Hope

Lou Basenese

Friday, June 03, 2022

When Fridays roll around in the Trend Trader Daily Nation, we roll out the charts.

All it takes is a quick glance — and you’ll be up to speed and poised to profit from the market’s most important trends.

This week, I’m dishing on another return to pre-pandemic levels. This time in the housing market.

Then, it’s an important update to the most important factor driving equity markets, consumer sentiment, and, well, just about everything else.

Don’t worry, though. For once, the latest data is encouraging.

So without further ado…

Housing (Bubbles) Happen

Real estate might be a local market, but everywhere you look, it’s been hot, hot, hot.

Case in point: The median home price in the nation increased nearly 20% since 2020. In regional markets, the individual price increases have been eye-popping. (I’m sure we all have a few personal examples.)

Of course, these rapid price increases all started in earnest when the pandemic hit and the great migration commenced out of urban centers.

Fast-forward to today, though, and employers are requiring people to return to work, mortgage rates are soaring, and supply is finally starting to increase.

In other words, the tailwinds driving rising home prices suddenly shifted into headwinds.

So much so, monthly new home sales plummeted in the most recent period to 691k.

As you can see below, we’re back to square one / pre-pandemic levels.

(click image to enlarge)

So, if you’re looking for a new home or considering investing in any type of real estate — wait! Prices are about to get a whole lot cheaper.

Speaking of things falling…

The Silent Thief that Robs Us All

In recent weeks, I’ve highlighted the reality that inflation is the only thing that matters right now.

Prices are rising across the board, not just in the real estate market. And it’s been causing serious anxiety for consumers, elected officials, investors, you name it.

In the face of so much frightening negativity, here’s a nugget of positivity worth monitoring: inflation expectations appear to have peaked.

More specifically, the Fed’s favored measure — the so-called five-year, five-year forward — is on track for its biggest monthly drop since March 2020. Take a look:

(click image to enlarge)

To be fair, inflation expectations are dropping from “incredibly high levels,” per Bloomberg. That means we’ll still be contending with it for some time.

But changes in expectations often precede a change in reality. So while inflation might not have peaked yet, the peak in inflation expectations suggests we’re getting close.

Another anecdotal sign that inflation likely peaked? CNBC recently hosted an hour-long special of Worldwide Exchange focusing exclusively on inflation.

For whatever reason, by the time networks get around to setting aside special time to address market-moving issues, it typically signals a turning point.

Here’s to that market reality proving true once again!

Ahead of the tape,

Tags: housing inflation