Market Update

Housing

The Housing Party is Starting to Wind Down depicts a waning housing market. The economy is reopening, creating less need for home offices or classrooms. The stampede from small, urban apartments to houses in the suburbs or rural areas seems to have peaked.

New home sales jumped from a $649K annual rate in Oct. to $811K in December but will eventually drop. The number of homes for sale/under contract slid to 910K at the end of Dec, the lowest on record since NAR began in 1999. Supply chain delays continue to slow builder activity; new houses under construction exceed completions by the largest margin since 1984.

Low rates have helped the economy, but these interest rates are headed higher—Q3 refinancing $512B vs. $442B for purchases.

Highlights

The national monthly mortgage payment for homeowners climbed 26.1% year-over-year, marking the most significant increase in Redfin’s history.
- In January, median single-family house price jumped 14% YoY to $357K (Redfin), and the median house is now 5.6X median HH income. (Q4)
Gary Shilling, the author of the article, expects a drop of 15% - 20%.
- It will hurt people who have been using home equity to support spending.
- Equity investors are already anticipating this – homebuilder ETF down 16% from high.
- The likely drop in single-family home prices will reduce inflation. (OER)

Russia

The White House warned that Russia could invade Ukraine at any time, and Biden says that there will no longer be a Nord Stream 2 if Russia invades. Putin says that the US and its allies are threatening Russia’s security with their military support and exercises in the Black Sea.

What does a Ukraine invasion mean for the Market? Oil prices could surge above $100 for the first time since 2014 with tighter inventories, and the Fed could raise rates.

Highlights

Equities tend to get over geopolitical shocks relatively quickly. Ned Davis Research studied the 28 worst political or economic crises in the 60 years before 9/11
- In 19 cases, Dow was higher six months after the crisis began.
- The average six-month gain following all 28 crises was 2.3%
- After 9/11, Dow fell 17.5% at low but recovered to Sep. 10 levels by Oct. 26 (MarketWatch)
Oil jumped on news that US officials believe Russia is close to invading Ukraine.
- This could spur sanctions against Russian exports of oil and gas.
Several analysts have predicted that oil prices could rise above $100, with the conflict a key catalyst.
- JPM predicted a price of $120 if the confrontation gets much worse.
- Otherwise, they said oil would stabilize at $90. (Barron’s)