What Is Driving The State Of Housing?

Ongoing concerns surrounding inflation could have a significant effect on the U.S. housing market, according to a presentation during the Benzinga Reopening Stocks Summit by Gianni Di Poce, president of The Mercator LLC.

What Is Happening: “Higher inflation means higher interest rates, and this can mean a lot for the real estate market,” Di Poce said. “Property values might actually rise in an inflationary environment.

“If you own the property, it's good news,” he added. “But if you're trying to buy the property, it's going to be a more expensive device.”

Di Poce pointed to the Federal Reserve’s response to the rapid inflation uptick as “the elephant in the room,” noting the central bank was just “beginning the discussion of thinking about tapering their quantitative easing program.”

He theorized the Fed is strictly interested in yield curve control, which he argued was crucial to economic wellness.

“They don't want that yield curve to flatten or go negative on purpose,” he said. “We live in a liquidity driven market — if liquidity dries up and there's no bid, then you get those massive crashes like we saw in real estate in 2008 and 2009 because liquidity was no longer there.”

See Also: Benzinga Reopening Stocks Summit: Reopening Stocks You Need To Know

What Else Is Occuring: The real estate market has been reshaped with “massive migrations” to Texas, Florida and Arizona, which are enjoying “booming property markets," Di Poce said. 

He also cited the impact of lumber prices on the future of new home construction.

“Lumber prices are down almost 75% from their peak in May,” he said. “That’s serious move — that’s nothing short of a crash. It’s a great barometer as well for home builders and new homes because what do you need to build the new home? You need lumber.”

Photo: Paul McGowan/Pixabay.