The National Association of Realtors‘ existing home sales report for October came in at a solid beat of estimates at 6.34 million. This number is above my trend sales peak of 6.2 million and that means we have had back-to-back existing home sales prints of over 6.2 million. Early in the year, I had discussed that if existing home sales stay in a range between 5.84 million and 6.2 million, that would mean it’s a good year for housing demand.
A big part of my work since the end of 2020 is explaining to people that housing data was going to moderate because the make-up demand from COVID created a surge in sales that is very abnormal. This meant that I had anticipated home sales to fall to a more reasonable range. However, the key was to not overreact to that moderation and say that housing was crashing. This was very common in the previous expansion when any weaker data line trend was interpreted by some people as a housing crash.
As I wrote in my blog in 2020: “The rule of thumb I am using for 2021 is that existing home sales if they’re doing good, should be trending between 5,840,000-6,200,000. This, to me, would be considered a good year for housing.”
I had anticipated a few prints under 5.84 million and so far we have only gotten one print this year below that level. This means with only two more reports left so far in 2021 every single existing home sales print has been higher than the total closing level of 5.64 million in 2020. Not bad considering the low inventory and all that unhealthy home price growth we have seen since the start of 2020.
If home sales moderate from these levels, that would be perfectly normal to me because clearly now the existing home sales market is outperforming my expectations with these last two sale prints. So much for the 2021 forbearance crash bros — the second half of 2021 housing crash YouTube fanatics. Mother demographics and low mortgage rates can crush a lot of American bear’s hearts as they did in 2020 and 2021.
The main reason why housing has done better in the years 2020 and 2021 is that we just got a boost in demand from the most significant housing demographic patch ever in history, as ages 27-33 are the biggest group ever. Then when you add move-up, move-down, cash, and investor buyers together, we should be able to always have total home sales — both new and existing — at 6.2 million or higher. This is something that couldn’t happen in the years 2008-2019. We are well above my 6.2 million total sales numbers and that means both years have been a noticeable beat in my eyes.
For every positive, there is a risk of a negative and we have seen that risk play out in home-price growth. My single biggest concern for the years 2020-2024 was that home-price growth could overheat and we have seen that take place, which is why I keep on saying this is the most unhealthy housing market post-2010. Not because of a credit housing bubble boom but because days on market are still too low, creating a bidding war frenzy that doesn’t do anyone any good.
From NAR: The median existing-home price for all housing types in October was $353,900, up 13.1% from October 2020 ($313,000), as prices climbed in each region.
One data set I like to keep an eye on regarding progress for what I want to see in the B&B housing market (boring and balanced) is for days on market to grow. Now we have some good news, the days on market grew one day from the last month’s report, from 17 to 18 days. I know it might not sound like much, but still, progress is progress. I would love to see days on market get to 30 days, so we still have a ways to go for that to happen.
NAR: In October, first-time buyers were responsible for 29% of sales; Individual investors purchased 17% of homes; All-cash sales accounted for 24% of transactions; Distressed sales represented less than 1% of sales; Properties typically remained on the market for 18 days.
Another theme of mine earlier this year was to expect negative year-over-year data in the MBA purchase applications in the second half of 2021. This is only due to the high comps that we had in the second half of 2020 — all due to the make-up demand from COVID-19. I saw a lot of rookie housing bears try to push this as a reason for housing to fall hard in the second half of 2021. This is a terrible rookie mistake made by people who lack the experience of tracking housing data properly. So, the negative year-over-year data in home sales should not be a shock anymore.
NAR: Sales fell 5.8% from a year ago (6.73 million in October 2020).
There has been a lot of hype that this entire housing market is driven by investors. Dear lord, this Micky Mouse act happens often, but the real driver of housing is mortgage buyers. When mortgage buyers fade — and they will at some point if mortgage rates go higher — so will home sales. We don’t have a Wall Street moat around housing. The MBA purchase application data had been firming up since 11 weeks ago and nobody really cared to notice.
It’s sexier to say that investors are driving home prices higher instead of all those pesky mortgage buyers, which is by far the biggest portion of housing demand. It just doesn’t sell well to say that millennial mortgage buyers are driving home prices to all-time highs. Yellow journalism, gloom-and-doom clickbait sites, and ideological extreme left and right-wing takes get a lot of play, but that doesn’t mean they are right.
Since the summer of 2020, I had have said housing will slow but it needs mortgage rates above 3.75%, which means the 10-year yield has to get over 1.94%. My 2021 forecast didn’t have that reality in play. In fact, the AB recovery model range of 1.33%-1.60% held its ground for a portion of 2021. Everything remarkably looks right with the bond market for me. As I write this article, the 10-year yield is at 1.60%. Priceless, isn’t it?
For the rest of the year, I am really watching one thing: I would love to see inventory hold up better than it did last winter. I do not want to see Inventory collapse like it did last year and start the spring of 2022 at those levels. So, that is my focus for the last two reports and the weekly tracking of inventory.
All in all, I would say existing home sales, for now, are outperforming and if sales levels hold above 6.2 million I will be very impressed. If sales trends come down a bit in the next few months, that would fall in line with my sales trend levels. However, the main story for 2021 is that home sales demand is going to end higher than it did in 2020 led by American mortgage home buyers.
DB: Is The World Learning To Live With The Virus?
DB: Is The World Learning To Live With The Virus?
After a day of zigzags on the virus front, we end with some encouraging observations from Deutsche Bank’s Jim Reid who shows in his "chart of the day" that according to global mobility data,..
After a day of zigzags on the virus front, we end with some encouraging observations from Deutsche Bank's Jim Reid who shows in his "chart of the day" that according to global mobility data, most of the world is back close to pre-pandemic levels of mobility (at least on a population-weighted basis) even if the GDP-weighted figure still lags, partly due to some of the larger DM economies still being down vs. February 2019.
Regardless, as Reid observes, the graph shows that "on both measures mobility is notably above last year’s levels. This helps show why reasonably strong YoY growth shouldn’t be too difficult to attain in H1 2022. In H1 2021, the world wasn’t that mobile."
This is good news because it means that - at least so far- as the winter covid wave and Omicron hit us, aggregate mobility hasn’t yet dipped. This, according to Reid, shows that either people are learning to live with the virus more or that it’s too early to tell as travel and domestic restrictions, only very recently imposed, have yet to fully take their toll, with more possibly to come.
To be sure, Austrian mobility has declined significantly with Germany also drifting lower. So where restrictions have been imposed there has been a consequence.
A more detailed heatmap of global mobility is shown below.
To be sure, the swing factor to winter mobility will be Omicron. For those readers looking for good news, the second chart from Reid shows that in South Africa covid fatalities from the Omicron wave have not responded to the rise in cases in the same manner as prior ones (with a 12-day lag).
While it is still very early days with the data subject to revisions, Reid notes that "we are getting more and more (albeit patchy) evidence that the new variant is less severe. So much now depends on how more transmissible it is, especially in heavily-vaccinated populations." Reid says that he leans on the optimistic side here "but it seems the number of Omicron cases are building fast enough that we should get some decent data very soon on how its impacting well-vaccinated countries."
Global Trade Case(s) Behind Global ‘Growth Scare’
The US Census Bureau today reported that US imports of goods and services reached a record monthly high of $290.7 billion in October 2021. Just goods alone, the figure was $241.1 billion, which was 11% greater than the previous peak set way back in Octobe
The US Census Bureau today reported that US imports of goods and services reached a record monthly high of $290.7 billion in October 2021. Just goods alone, the figure was $241.1 billion, which was 11% greater than the previous peak set way back in October 2018. With (questionable) media accounts continuing to highlight West Coast port traffic, there may not otherwise seem any end in sight to the “inflationary” goods boom as consumer spend themselves to the moon.
The money illusion, however, is creating the impression of just this sort of trend. Fortunately, the Census Bureau also gives us a crude measure to specifically import (and export) volumes adjusting for prices. When doing so, October 2021 imports of goods were a price-adjusted 6% more than they had been in October 2018.
While that in itself is a big difference, more so is the one since March this year. Even in nominal terms, US demand for foreign goods has clearly slowed way down from the frenetic pace begun during last year’s reopening. It’s still rising (as is imports of services), yet all of it and more is attributable to “inflation”, or mere price changes.
And even in the best months, nominal inbound trade remains well off the prior trend.
In real terms, more or less, the Census Bureau believes the volume of goods has actually declined by 1.5% over these particular seven months when bond yields have fallen, curves have flattened, and deflationary signals proliferated long before either delta or omicron variants to the coronavirus.
Imports coming from the US’s largest trading partners are actually substantially less than they had been several years ago – indicating that much of what’s been shipped to America hasn’t been the usual traded stuff (not just missing autos). The manufacture of consumer goods, in particular, coming from China and Europe hasn’t matched the rhetoric surrounding either the goods boom or the “inflation” created by it.
Quite a lot of nominal trade, then, is the US import of high- and higher-priced raw materials rather than mainly due to booming consumer spending.
This volume difference, or money illusion, has been spotted all over the world. It has been more difficult to pick up in places like China, for all the usual reasons of questionable data, questionable data collection practices (discontinuities), and perhaps even a sprinkle of politics like those made by the particulars of this pandemic.
For instance, without factoring prices, there’s been a huge difference in data for what should be two sides of the same thing: US imports from China, as estimated by the Census Bureau; Chinese exports to the US, as estimated by its General Administration of Customs.
Yet, for most of this year – focused more so since March 2021 – the Chinese claim a whole lot more goods have been sent to the United States than the United States estimates has been received from China. Once upon a time, the data had largely matched, and when it may not have the discrepancy was nowhere near this huge.
There are any number of potential reasons for this, though only one, to my view, seems plausibly able to satisfactorily explain what is a mostly post-COVID divergence: the ongoing “trade wars” leading Chinese shippers to reroute goods through intermediary countries to avoid certain tariffs; lags in shipping times that have gotten lag-gier with purported US port difficulties; or, perhaps pricing differences on the most basic level.
It’s the last one that potentially includes at least a little bit of history; the Chinese practice of over-invoicing goods (having used Hong Kong as the staging point for this accounting fiction) so as to import more US$s for “exported” goods on the back end outside the scrutiny of financial authorities.
This would certainly fit given the dollar shortage which has been plaguing China all year, as the data makes plain, but especially February 2021 forward fitting the same timeframe.
In addition to what would be a very different kind of money illusion in terms of Chinese exports, there’s the same one applied to China’s imports from around the rest of the world (not the US; the Chinese buy very little of American products or services).
China’s GAC says imports into that country continue to rise at a seemingly decent rate, up a sizzling 31.7% year-over-year in October, yet much of that change is attributable to base effects first before even getting to possible price effects. The 2-year change (annual rate) was only 17.4%, which only sounds still-terrific outside of historical context.
Recent 2-year rates of change in China’s imports aren’t any different from 2018’s, which should already ring substantial alarm bells given how 2018’s import activity left the rest of the world facing a substantial shortfall (in trade) and downturn/recession long before COVID would plague China.
And, again, the money illusion in Chinese trade masks what in volume must be even less than 2018; not just rates of change, also absolute terms. Using the iron ore example I had presented last month, with iron prices collapsing since July the illusion is now far less misleading.
But if we’re really looking to confirm or deny the world’s developing “growth scare” from this global trade perspective, we don’t even need to adjust for prices to see how Chinese demand for more finished goods – like in the US – has tailed off dramatically only from there going back all the way to the end of last year.
China’s imports from Europe, Germany expressly, have declined by a sizable amount compared to last December, a downturn which amplified around, like a whole lot of things globally, July.
Even with nominal prices up as far as they have gone on traded items and goods, this data from China aligns only-too-well with “growth scare” as it would if the Chinese internal economy was at the forefront of growing weakness – prices included.
These import figures certainly corroborate the same trends coming from places like Germany which are global bellwethers largely for how closely tied German industry is with China’s internal demand situation (that never seems to match inflationary narratives in whichever time period).
Altogether, on the surface there appears to be, from an American perspective, an inflationary boom still booming. All the while, at the very least something changed after March and April in the US besides prices. More concerning, something more changed in that same wrong direction for China (therefore Europe and elsewhere) also entering summer.
Just how much has become more serious weakness is a matter for statistics and the nominal illusion. Even if we can’t accurately figure it, in one sense it doesn’t necessarily matter.
For an inflationary boom, a real one for the whole system, there shouldn’t be any ambiguity let alone so many clear cases of the wrong factors and outcomes. And that’s before observing outright, outstanding weakness in very clear-cut fashion from the one place on Earth the rest of Earth is counting on – and has been told to count on – to pull the global economy up the whole rest of the way from a mess now almost two years old.
There are goods flowing, as there always are, it’s these too many questions and outright contradictions which leave the world’s bond curve(s) too much to its deepening skepticism. There be landmines, alright.
Gold Trends 2021: Price Sheds 6 Percent Following Record 2020
Click here to read the previous gold trends article. After soaring to an all-time high of US$2,058.40 per ounce during 2020, gold has faced headwinds in 2021.Values for the yellow metal started the year at US$1,898, but the level proved unsustainable…
Click here to read the previous gold trends article.
After soaring to an all-time high of US$2,058.40 per ounce during 2020, gold has faced headwinds in 2021.
Values for the yellow metal started the year at US$1,898, but the level proved unsustainable and gold had sunk to US$1,700 — still its year-to-date low — by the end of the first quarter.
Positivity in the second quarter pushed the precious metal to its annual high in May, when the price touched US$1,903; however, it soon retreated to the US$1,760 range a few weeks later.
Since then, the currency metal has struggled to breach US$1,800, and many experts are pinning its price volatility on broader monetary issues. Read on for a look at trends that impacted gold in 2021.
Gold trends 2021: Key headwinds keeping the metal down
Speaking to the Investing News Network, Brian Leni, editor of Junior Stock Review, explained that 2020’s pandemic response led to a massive expansion of global debt and was accompanied by low interest rates, “which the market knows is a recipe for disaster, but it keeps the ‘party’ going, so to speak.”
This environment facilitated gold’s 32 percent price increase between January and August of last year, and ultimately allowed the yellow metal to end 2020 up 21.18 percent from its January start of US$1,552.30.
“Over the last year, however, the gold price has drifted mostly downward,” Leni said.
“In my view, this isn’t because of any fundamental gold market reason. I think that negative price action is the market predicting or expecting the US Federal Reserve to raise interest rates to quell the rampant inflation that we have endured over the last 12 to 16 months.”
With economic stimulus winding down and growing uncertainty emerging around new COVID-19 variants, the Fed is in a precarious position.
“The problem for the Fed is twofold,” Leni said. “First, debt levels are so high that any significant interest rate hikes at this point could easily destabilize the market, causing a cascade effect around the world.”
He continued, “Second, the broader stock market is at all-time highs. Easy money, low interest and lockdowns have given the public more access or interest in the stock market than ever.”
The result is a delicate situation the Fed will have trouble balancing.
“If the Fed raises rates and begins its tightening process, I have no doubt that this will be negative for the broader stock market,” Leni noted. “It’s a big risk to many people’s savings, and the Fed knows it.”
Because of this, he thinks it will be challenging for the Fed to raise rates to the projected 0.25 or 0.5 percent amount in 2022 without causing a widespread ripple effect.
“Ultimately, an investment in gold is an investment in real money,” added Leni. “Real money that can’t be debased and is not simultaneously someone else’s liability.”
Gold trends 2021: ETF outflows preventing price growth
After dropping to a year-to-date low of US$1,700 in Q1 and rallying to this year's high point of US$1,903 in Q2, gold remained rangebound between US$1,700 and US$1,800 for most of Q3.
In addition to the factors mentioned by Leni, gold's flat price performance in the third quarter has been attributed to a 7 percent decline in investment demand from the exchange-traded fund (ETF) segment. This trend continued in October, when gold ETF holdings shed 25.5 tonnes.
"Global gold ETF holdings fell to 3,567 tonnes (US$203 billion) during the month — notching year-to-date low levels — as investor appetite for gold diminished in the ETF space following price declines in August and September," an October World Gold Council gold ETF report states.
In comparison to 2020’s record-setting 877 tonnes of inflows, so far 2021 has seen outflows of 269.1 tonnes and modest inflows of 87.6 tonnes. What's more, six of the last 10 months have registered net outflows in the gold-backed ETF segment. The ETF exodus has been attributed to investors adding more risk to their portfolios.
That said, Juan-Carlos Artigas, head of research at the World Gold Council, noted that 2021’s outflows seem disproportionate because 2020, especially Q3, was such a record-setting period for the gold ETF space.
However, he did point out that significant moves in the gold price tend to be influenced by the investment demand segment on a short- to mid-term basis. Looking longer term, overall demand from all segments — including jewelry, technology and bars and coins — is the price driver.
As investment demand shed 7 percent, or 831 tonnes, the gold price was further impacted by total mine production, which ballooned to 959.46 tonnes, up almost 90 tonnes from Q2’s 876.77 tonnes and significantly higher than the 842.72 tonnes mined in the first quarter.
All of gold’s headwinds combined in late September, forcing the metal to a six month low of US$1,726.10.
Gold trends 2021: Inflation threat gaining traction
As new lockdowns began to emerge toward the end of the year, and stronger variants of COVID-19 started to be detected, some positivity in the broader markets began to erode.
This uncertainty benefited the yellow metal, which edged higher throughout October, starting the session at US$1,761 and ending the 31 day period at US$1,775.
“Gold price strength happened amid higher nominal yields: gold had been generally inversely correlated with nominal bond yields this year,” a November WGC report notes. “However, a rise in inflation expectations outweighed the move in nominal rates and resulted in lower real rates.”
As inflation began to exhibit signs of being more structural and less transitory in the fourth quarter, gold appeared to benefit from the looming uncertainty.
"If you look at the performance of interest rates versus gold over the last 20 years, as interest rates go up, gold sells off,” said Gareth Soloway, chief market strategist at InTheMoneyStocks.com, in early November.
"We haven't seen gold sell off, we've seen gold more chop sideways over the last couple of months as interest rates have gone up. And what that again tells us is that the market is starting to realize inflation is here, and big money is buying every single dip on gold. So I continue to be very, very bullish on gold over the longer term.”
Watch Soloway discuss where gold may go in the months ahead.
These factors are anticipated to be further heightened by changes in asset allocation, which have been fueled by historically low interest rates, pushing investors to add risk to their portfolios earlier in the year. “Because of that, investors are looking for ways to hedge some of that exposure, and that can be supportive of gold,” Artigas said.
By the end of November, gold had rallied to a 60 day high of US$1,803.20 ahead of December volatility courtesy of the Omicron variant, which hampered air travel and forced countries to reimplement quarantine-style protocols.
The spreading variant pushed markets lower during the first week of trading in December. However, gold also faced headwinds, retracting to the US$1,762 level before rebounding to the US$1,780 range.
Gold trends 2021: Industry waiting for a market correction
Despite gold's lackluster 2021 performance, those in the industry have a positive outlook for next year, with many suggesting that the Fed won't be able to stay in control for much longer.
Barisheff explains why gold is the best investment right now.
"The market is due for a major correction. What will cause it and when it will happen is anybody's guess — it could be tomorrow, it could be six months from now," said Nick Barisheff, CEO of BMG Group, who advises investors shed some of their risk when initial losses start to mount.
Rather than rushing to cash, a popular move amid market turmoil, he has other ideas. "Instead of taking your money off the table and going into cash … you go to gold (because cash is devaluing daily),” Barisheff said.
“Gold will at least hold its own and probably appreciate ... so by sitting it out in gold you can wait until the market finishes correcting and then buy back in.”
Don't forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.stimulus pandemic covid-19 fed federal reserve etf quarantine interest rates stimulus gold
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