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U.S. House Prices Forecast 2014, 2013 Bull Market to Yield U.S. Economic Boom

Housing-Market / US Housing Jan 05, 2014 - 04:37 AM GMT

By: Nadeem_Walayat


U.S. central bank rampant money printing has succeeded in inflating the US housing market far beyond anything that anyone could have imagined at the start of 2013, in fact a year ago the consensus view was that for U.S. house prices to end DOWN on the year, and such prevailing bearishness persisted in the mainstream press well into the middle of the year, instead as of writing the latest house prices data of 180.27 (SPCS10) published on 31st Dec 2013 for October 2013 puts U.S. housing market momentum at a high of 13.5% per annum as illustrated by the graph below:

In my last U.S. housing market analysis of late November 2013, I mapped out a momentum trend trajectory of how I expected U.S. house prices to perform during 2014:

27 Nov 2013 - Raging U.S. Housing Bull Market, House Price Inflation Breaks Above 13%, 2014 Outlook

What are the Implications if Momentum Going into 2014?

I would not be surprised if current strong momentum is sustained into data for February 2014 to be released in April 2014. Therefore U.S. house prices could be rising at an annualised rate of more than 16% per annum! However, such momentum would NOT be sustainable and WOULD give way to a correction to an inflation rate of under 10% and I would not be surprised if it falls to 7% by July 2014 data to be released in September 2014.

The latest data for October 2013 confirms my view that the U.S. housing market is going to be experiencing a severe slowdown in momentum during 2014 as the inflation rate drops from about 15% early 2014 to probably under 7% towards its end. This is in the context of my over-riding 3 year forecast of Jan 2013 to early 2016 as U.S. house prices look set to converge towards the forecast trend trajectory during 2014.

By mid 2014 the sharp slowdown in price rises will prompt many commentators in the mainstream press to proclaim that the bull market has ended, when in reality it would just represent the market laying the ground work for the next leg higher during 2015 as prices oscillate around the forecast trend.

U S House Prices Forecast 2014

12 Jan 2013 - U.S. Housing Real Estate Market House Prices Trend Forecast 2013 to 2016)

US House Prices Forecast Conclusion - As you read this, the embryonic nominal bull market of 2012 is morphing into a real terms bull market of 2013, with each subsequent year expected to result in an accelerating multi-year trend that will likely see average prices rise by over 30% by early 2016, which translates into a precise house prices forecast based on the most recent Case-Shiller House Price Index (CSXR) of 158.8 (Oct 2012 - released 26th Dec 2012) targeting a rise to 207 by early 2016 (+30.4%).

The following updated graph illustrates the trend that has transpired following the actual buy trigger that took place that transformed the embryonic bull market of 2012 into a bull market proper as of October 2012 data published in late December 2012.

Excerpt: The graph shows that following the expected real terms downtrend forecast into early 2011, continued into the end of 2011 and that subsequently the embryonic bull market of 2012 has triggered a BUY SIGNAL ON the LAST Case Shiller data release (October 2012), that will likely be confirmed on the release of subsequent data over the coming months.

The key point the chart illustrates for today is that contrary to the end of the bull market mantra that people will tend to be liberally exposed to in the mainstream press, the reality is that the U.S. housing bull market is nowhere near triggering a SELL signal, at least not for the whole of 2014 which continues to support my 3 year bull market scenario into early 2016, as this indicator will continue to prove remarkably useful in warning of the next market turning by that point in time.

So whilst US house prices have been soaring during 2013, still prominent market commentators such as Peter Schiff could be seen literally warning of an imminent CRASH, as the US housing market literally galloped up a debt ceiling and government shutdown mountain of worry.

6/4/13 - Great Reflation Produces Mirage Of Recovery In Housing

By Peter Schiff - concluding -

Of course the real risks in housing center on the next leg down, in what I believe will be a continuation of the real estate crash. We can’t afford to artificially support the market indefinitely. When significantly higher interest rates eventually arrive, the fragile market will again be impacted. We saw that movie about five years ago. Do we really want to see it again?

U.S. Economic Boom of 2014

In my opinion the raging housing bull market of 2013 is merely phase 1 of an engineered feed back loop that will next manifest itself in strong U.S. economic growth during 2014 that is far beyond that which any academic analysts can perceive of today as they obsess over the likes of QE tapering, despite the fact that tapering STILL MEANS continuing money printing and somewhere along these academics seem to have forgotten all about what CHEAP fracking energy means for the U.S. economy. So whilst the foot may have been taken off the accelerator for U.S. house prices during 2014, the gas has already been amply applied towards uplifting the U.S. economy that will make itself manifest during 2014 and which will feed back into the U.S. housing market during 2015.

In terms of GDP this translates into typically adding 1.5% to 2% to the academic economic forecasts for 2014. For instance as of writing the IMF is forecasting that the U.S. economy will grow by 2.5% for 2014 whereas actual growth will likely turn out to be a far stronger at a rate of 4% to 4.25%.

Ensure you are subscribed to my FREE newsletter for ongoing in-depth analysis of the U.S. and UK housing markets during 2014.

Summary for 2014 - Sharp slowdown in U.S. house prices inflation to under 7% coupled with sharp acceleration in U.S. economy to GDP 4% to 4.25%.

Your analyst warning you not to pay any attention to the bubble talking fools during 2014, all of whom never saw this bull market coming and thus will continue to remain in a permanent state of denial just as they have been towards the stocks stealth bull market of the past 6 years. Understand this - we won't see a bubble peak in U.S. house prices for many more years.

Source and Comments:

Nadeem Walayat

Copyright © 2005-2014 (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of four ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series.that can be downloaded for Free.

The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2016 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


05 Jan 14, 15:59

Many are still underwater, too many shadow and vampire foreclosures, and too many of us got burned when our loser neighbors walked away. Not going to get sucked in to a mortgage every again. There are better things to do with my money these days. I prefer to be mobile, have no debt, and enjoy life.


10 Jan 14, 21:20
Thank you


I have been a long time follower of your articles from late 2008 onwards and have been aligned with your thinking all through the "stealth Bull Market" as you rightly called it during March 2009, right at the point of deepest despair everyone was experiencing. Thank you for your service.

That call re-inforced my conviction when I had just placed all my 401K from Money market to stocks when S7P was at 730 on it's way down. your call had then helped me clear me from any new doubts creeping I was experiencing at that time.

Now coming to the present scenario. I agree we are in a heart stopping bull market in Stocks and Housing, which amaze most people. I think this is happening because Govt's are paying full price for any defaulting assets(be it houses via MBS), funding Govt using QE to fill the shortfall due to reduced foreign buying of UST. All these money printing is making everyone nimble by moving from UST to assets(stocks, Real Estate, US 90 day Bills). Finally people will move from US Bills to USD and then to only physical assets. I think Gold price will also fall precipitously and but then there will not be any Gold available because Miners will fall off and current holders never sell.

Here in Northern Caliofrnia, all those exported dollars(past 2 decades) are flying back to US. we can see this in Chinese gobbling up Real estate using cash and out bidding all others. sorry state of affairs for normal people.

11 Jan 14, 01:17
Ordinary People and Debt

Yes, I think it is / will be very hard for ordinary people because they are conditioned from an early age to take on debt. DEBT IS THE REAL ISSUE, once people recognise this and live debt free then the rest is easy.

For debt conditions people to be rewarded without work. Whereas saving towards a purchase conditions people to not waste money on junk and instead accrue assets.

It is a state of mind. People I know in life do not understand my thought process, they cannot understand that I am debt free with cash in the bank so why don't I splurge on x,y,z... it is because I have been conditioned through being debt free my whole life whereas they have been conditioned to become debt slaves.

Not borrowing money gives one a different mind set and is the starting point for everything else that follows.



11 Jan 14, 13:06
People and Debt

It's not just ordinary people but people in general, not just lower middle class people buying upper class prestige symbols, but even millionaires and billionaires over-extending themselves.

In short, it's the old moral of not living beyond one's means. This is just a starting point. The next points on the route to financial happiness are to a) save and b) invest wisely.

It reminds me of Mr Micawber's famous recipe for happiness:

"Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

15 Jan 14, 03:07
slight disagreement


One slight disagreement regarding taking on debt.

I think this is the BEST time to take on FIXED interest debt like a 30 year fixed interest mortgage at historical low rates. current rates are approx 4.4% fixed for 30 years.

I think already money has already started flowing from US long Bonds to US Bills. we see in rise in yield of US 30 year Bond but US 90 day bills are at historical low near 0%. This means big money is afraid to commit money for long time and wants to be nimble. They cannot put it in Banks because FDIC does not protect over a puny $500K. So they have to buy US 90 day Bills.

This is the best time to go on debt in USA in fixed rate. I think this cannot be done in other countries because they don't give such fixed rate loans. you are basically shorting long bond, when you take on a 30 year loan. Best time to buy a house on Loan - in my opinion.

15 Jan 14, 11:57
Mortgage debt

Hi Biju

Yes it would be very enticing to borrow at 4.4% fixed for 30 years. But the price is that you would not own the property untl the mortgage is paid off i.e. there will be restrictions on what you can do with your property which is the case in the UK such as if you decided to rent the property or even rooms out which would put you in breach of your mortgage terms and hence could make you liable for sanctions.



17 Jan 14, 04:24
Mortgage Debt


That is the beauty of the typical conventional mortgage in the US. There are no sanctions so to speak, if in the event you wish to move out of the residence at a later point in time and turn the property into a rental. Regardless you're locked in place at a low rate for 30 years, not to mention the tax savings, interest write off, depreciation on rental property, etc.

Pretty tough to not take on 4% long term debt for an effective after tax rate of much less, knowing that the near term 5 years or so will yield inflationary value increases by the magnitude of your forecasts. Well located desireable property up 30%+ in the next several years will look in hindsight as a winner of an investment.

Thank you for your insight as always. I've seen nothing more accurate anywhere else.

03 Apr 14, 17:31
U.S. Housing Market

Hello Nadeem,

My name is Chris Bang, and I've been following your analysis for years. Being in the US (CA and AZ specifically) I am of course quite interested in your US housing analysis, but I understand you're located in the UK so many of your writings focus on your local markets - which makes sense, but I wanted to see if you planned on a new updated US housing article soon.

As you mentioned previously the US market would lull, and as such is seemingly the case there are the pundits who are already calling the housing recovery over. Versus a brief pause before taking off again many are proclaiming that this is the last of the appreciation for some time, and it's comical to see the same ones who had no clue, making bold statements as if they knew what they were talking about.

I own real estate in Arizona and California, and you can feel it here - that things are still "good" but slower paced than in 2013. Then again 2013 felt almost frenzied which is never sustainable, so it's all a healthy balance.

Would enjoy to see another US housing update and thank you as always for your work. You remain #1 on the list as far as I am concerned with fielding out personal agenda and noise, to simply telling it like it is. Very rare these days, and for YEARS you've been spot on.

Best regards,

Chris Bang

03 Apr 14, 21:36
U.S. Housing Market Analysis

Hi Chris

Yes, the perma-fools are very predictable, taking the anticipated slowdown as a sign for the end of the bull market which illustrates that they don't have any money on the line, or as Warren Buffett puts it 'skin in the game' most of those that commentate on the markets take the easy route of only looking at the ripples on the surface , when reality the ocean is several miles deep!

My primary focus is on getting the new housing ebook done and dusted within the next 2 weeks, however I will try and post an update for the US housing market during this time period.



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