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Proprietary Data Insights Financial Pros Top Regional Bank Stock Searches This Mo
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Why Housing Prices May Continue Higher As we discuss in our main story below, inflation came in higher than estimates. It’s now largely expected the Fed will hike rates aggressively in March and the coming months. One of the largest contributors to inflation has been housing. So, with higher prices and higher interest rates, you would expect demand to taper right? That may not happen. The imbalance between natural demand and supply is huge. But it’s also split along economic lines. In December, the median home price rose 15.8% year over year. Now, check out the data by housing price group. Nearly all of the home price increases are on the high end. In fact, homes under $250K all saw price decreases while homes between $250K-$500K landed flat. Why is this a problem? Because folks at the lower end are getting priced out of the market. But that won’t happen forever. And the buyers at the high end have more discretionary income. With supply tight, they’ll continue paying higher and higher prices. That means should the low end of housing stop its decline, we’ll have MORE inflationary pressure added to housing. How do we know? Because the amount of supply is still at historically low levels of 2.1 months. |
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Inflation |
Inflation Will Lead To This |
Key Data:
Despite some positive signs of inflation easing, Thursday’s Consumer Price Index (CPI) data, which measures the prices of a basket of consumer goods, came in hot. The Bad
Looking Ahead Steep increases in used vehicle prices started around April-June of last year. As we lap those months this summer, the percentage increase in prices year over year will ease. However, you can see in the chart above that even though the rate of inflation is slowing, it’s still moving higher. Essentially, the car has stopped accelerating, but it’s driving 100mph. The higher than expected reading adds to the case for the Fed to hike rates in March by 0.5% as opposed to a typical one rate hike of 0.25%. Why This is Happening Supply and demand are grossly mismatched. Ironically, the government stimulus, which kept people off the streets, also padded their pockets, leading to a surge in post-pandemic demand that supply simply couldn’t fulfill. On top of that, labor remains extraordinarily tight with unemployment at 4%, a relatively low level historically. To attract and retain employees, companies are forking over huge sums of money. In the U.S., the focus has now shifted on reducing imports and creating more domestic production, ironically leading to an increase in imports needed for construction. The Bottom Line: Interest rates are going up this year. That means you’ll pay higher rates on everything you borrow from mortgages to credit cards. The good news is you also make more from savings accounts (ideally). Heavy demand coupled with higher rates favors banks with high amounts of lending, especially on the corporate side. Take a look at regional banks like Heartland Financial (HTLF) as well as US Bancorp (USB). |
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