Home Sales BOOM in the USA -- The Great BOOM Ahead -- BOOM Forecasts a US Economic BOOM --

HOME SALES BOOM IN THE USA

The sales of existing homes in January in the United States increased by 23.7 % over last year’s January 2020 numbers. This is an extraordinary fact because it has occurred in the depths of a bitter winter. Prices rose by 14 %, an even more striking fact.

This sounds great and indicates that home loans are being granted to willing borrowers. This suggests that the economy will benefit. However, turnover of existing homes does not contribute much to economic growth. Not much new economic activity occurs when an existing property changes hands. Most often, the seller just moves on to buy another already existing home. To boost the economy more significantly, you need to see increases in bank loans for new homes, over and above the inventory of existing housing stock. So let’s look at new homes.

New home sales in December were around 840,000. The average number since 1970 over 50 years is around 640,000. So 840,000 is a healthy number, again during a bitter winter. But we need to look deeper into the complex world of housing.

The Homebuilders Index on the New York stock exchange fell dramatically from 1100 to 450 in March/April 2020, during the height of the Covid scare. It has since recovered to 1300. Again, a remarkable performance. Investors have shown willingness to back the sector right throughout the Covid panic during the last 10 months.

The Construction and Materials Index has also shown a similar pattern of strong recovery while the Banking Index has recovered in a slower fashion but is now rocketing higher in a game of catch-up.

All of that is good news but let’s not get too carried away. Last year in 2020, there were 1.88 million building permits approved in the nation for privately owned housing units per month at a seasonally adjusted annual rate. To put that into perspective, building permits in America in 1994 numbered 1.66 million per month. And the highest number ever recorded in 35 years was 2.155 million per month in 2005.

So building permits are recovering but they are still 33 % below the record high set 15 years ago. This gives you some idea of how moribund the US economy has been since the great financial crisis of 2008, despite the strong recovery from the Covid panic.

Mortgage interest rates are at record lows so where are the buyers? Unfortunately, unemployment and underemployment are causing significant losses in job certainty and income certainty. Without certainty, home loan applications will suffer. It is as simple as that.

And without significantly stronger growth in new home loan approvals, the net money supply contribution from this sector cannot grow sufficiently to create an economic boom. A boom in pre-existing financial assets and pre-existing real assets is one thing. But a boom in activity in the real economy is another thing altogether.

Now let’s look into the future.

THE GREAT BOOM AHEAD -- BOOM FORECASTS US ECONOMIC BOOM

What about US demographics? The total number of older Americans above 65 years of age is 51 million. That group is not going to build many new homes or even buy many existing ones in the future.

However, there are 129 million in the age group 24 years to 55 years. It is this group who need to be housed and who must buy homes. And, if you look at the current new home construction numbers, you will reach the conclusion that many more new homes will have to be built in the next 10 years, especially if the older age cohort continues to live to 90 years and beyond. Along the way, new home prices should rise due to increasing demand.

This is exactly what we are starting to see in the USA. So a BOOM in construction, mortgages, home sales and home prices seems inevitable during the next 10 years. And it should continue right through to the year 2045 as the next wave of young people age into buying homes because another 43 million Americans are in the following group, currently aged from 15 years to 25 years. That means that 172 million Americans are currently aged from 15 years to 55 years. And most of them want to form families and own homes.

So, it looks like the United States needs to build many more homes per month than they are currently doing. And that building project has to start in 2021, as far as BOOM can see.

This analysis seems to indicate that we could be at the very start of The Greatest US Economic BOOM — dead ahead. And that boom should last for some decades through to 2040 – 2050 due to the demographic follow through.

We are still in a slow period economically with the US economy moribund for the last 12 years and needing massive federal government deficit spending as life support. BOOM has pointed that out countless times over the last 5 years. And it will probably continue in early 2021 as this extremely severe winter runs into a delayed Spring. Summer should bring a significant improvement in economic activity as far as BOOM can see. 2021 should start with poor economic growth and end with strong growth due to pent-up, delayed demand becoming manifest in the housing market. If this happens, then bank loan growth should surge to supply the fresh new money for a boom.

Hopefully, all of that will happen. Nobody, including BOOM, wants to see the opposite scenario

TIPS BONDS FALL AS PER BOOM FORECAST

Last Sunday, BOOM suggested that the recent two year old surge in prices of Inflation Protected Bonds in the US -- called TIPS -- was over and that they would soon decline in price.

BOOM stated "TIPS have been rising in price, presumably due to increasing demand from poorly informed investors. TIPS are bonds issued by the US Treasury that protect against CPI inflation. TIPS stands for Treasury Inflation-Protected Securities. BOOM suspects that their recent rise in price will soon be over and price declines should begin."

That is exactly what happened. TIPS prices began falling the following day, Monday. And they continued to fall like a stone each day throughout the week. The price of the ETF known as TIP fell from around 127.8 on the Monday morning to a low price on Friday of 125.5. It seems that either BOOM is being read by the savviest Bond investors in the US or they reached the same conclusions as BOOM on exactly the same day and started to sell out their holdings of TIPs bonds at the open of trade last Monday.

While this dis-inflationary price move was taking place during the week's trading, the prices of many commodities were continuing to rise sharply. Base metals surged upwards all week especially aluminium, copper and zinc prices. Agricultural commodities continued their upwards momentum that began in July last year.

The Chinese New Year began on 12th February. The Year of the Metal Ox. Others call it the Year of the Bull.

YELLEN IS YELLIN'

Meanwhile, the US Treasury Secretary, Janet Yellen called for "more stimulus". She said " ... there's a lot of pain in the economy still, evidenced by the recent jobless claims". She can see that the CPI inflation momentum is failing and, being a central banker, she only knows one thing -- throw money at the problem.

She also said that "Bitcoin is a highly speculative asset" and warned investors. "I think it's important to make sure that it is not used as a vehicle for elicit transactions and that there's investor protection". "And so regulating institutions that deal in Bitcoin, making sure that they adhere to their regulatory responsibilities, I think is certainly important."

She also said " ... there could be parts of the U.S. stock market in which investors should exercise caution". BOOM thinks that this is a reference to the Tesla share price and, possibly the FANG stocks. Those are Facebook, Amazon, Netflix, and Google (Alphabet). FAANG stocks include Apple in that list.

So, in regard to the prices of Bitcoin and Tesla, BOOM again suspects that their recent rises in price will soon be over and price declines should begin. And the FANGS plus maybe Apple could also weaken soon. This should allow other stock sectors in the US with more fundamental value to shine as investors rotate from fashionable sectors to other less fashionable ones.

Watch for significant sector rotation throughout the year. This has already begun with investors switching to the energy sector as well as both regional and large banks.

US YIELD CURVE IMPROVING

The US sovereign bond Yield Curve is rapidly taking a more normal shape as long bond prices fall. At the short end, the yields on 3 month Treasury Bills are heading South -- towards Zero. This improvement in the shape of the yield curve is causing investors to buy bank shares with increasing enthusiasm. Property REITS (Real Estate Investment Trusts) are also continuing to be bought steadily by investors looking ahead.

In economics, things work until they don’t. Until next week ………… Make your own conclusions, do your own research.  BOOM does not offer investment advice.

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