Rising interest rates rattle markets. Home sales slumping. What’s next?
KINGSTON, NY, 28 February 2018—In early February, equity markets went into a tailspin over fears that the US Central Bank would raise interest rates to contain inflation.
All it took Tuesday to drop the Dow 299 were comments from Federal Reserve Chairman, Jerome Powell, suggesting interest rates may be more aggressively raised to keep the economy from overheating, than Wall Street anticipated.
But it's more than equities slumping when interest rates rise. In the US, when mortgage rates rose to 4.40 percent, new home sales fell 7.8 percent in December and pending home sales dropped 4.7 percent in January, hitting the lowest point in four years.
GOT NO MONEY
The US business media blames home sales declines on supply issues. However, the facts prove otherwise. Currently, it takes 6.1 months to clear the housing supply. Considering the normal standard of six to seven months to clear inventory, this is not why housing is slumping.
Ignored by the media is how the middle class is shrinking, the lousy pay average Americans earn ... and, with even a slight increase in interest rates, the housing market is unaffordable to large segments of society.
With disposable income increasing just 1.9 percent, and a rate rise to 4 or 5 percent for a 30-year loan spiking monthly mortgage costs 12 percent, the “average” American is being frozen out of the market.
Moreover, rising interest rates and fears of inflation come at a time when, despite headlines that trumpet low unemployment and rising wages, most workers reaped minimal increases in take-home pay.
One reason stock markets began to tumble in early February was the optimistic fake news view that inflation and interest rates would rise because: “In January, median hourly wages rise 2.9 percent … strongest increase since June of 2009.”
However, Trends Journal analyses, ignored by the media, proves that perspective false. That increase largely affected supervisory positions; wages for nonsupervisory jobs, comprising 80 percent of the labor market, remained at a miserly 2.4 percent growth rate.
BUY A HOME! WITH WHAT?
Americans owe $13.1 trillion in consumer debt, including $1 trillion in revolving credit. And household debt is rising at a rate 60 percent higher than the increase in wages.
Beyond rising interest rates rattling equity markets and negatively impacting the real estate sector, where will the money come from to pay the global sovereign commercial debt that will hit an all time high of $47.3 trillion this year?
In the US, the Federal Government debt, exceeding $20 trillion, is now the highest it’s been in 70 years.
TREND FORECAST: The global equity markets were fueled by historically low interest rates and unprecedented Quantitative Easing monetary measures. That party is ending: More debt, rising interest rates, higher costs, greater burden.
While we do forecast a housing and an equity market correction, absent a black swan/wild card event such as war in the Middle East, at this time, we do not forecast a crash.
We also forecast that Fed Chair Powell, hand-picked by President Trump, will only gradually increase interest rates and in fact, restrict them if equity and real estate markets come under pressure.