Bubble Top

Bubble Territory – A look at Consumer Credit and House Price Expectations

More evidence that the U.S. economy is in bubble territory. Here is a quick look at the American consumer in terms of credit and the housing market.

Consumer credit surged by the most on record, soaring by $35.28 billion, nearly double the consensus estimate of $18 billion and sharply higher from last months’ $20.04 billion.

Consumer Credit July 2021

What was behind the surge? Well, one month after we noted a surprising dip in credit card usage in April, in May Americans, went all out, and splurged, pushing revolving credit, i.e., credit card debt, higher by a whopping $9.2 billion, the biggest monthly increase since December 2019, and pushing total revolving debt to $974.6 billion.

Nonrevolving Credit July 2021

But if the spike in credit card debt was notable, it was the explosion in non-revolving debt, i.e., auto and student loans, that was the true outlier in May when it surged by a record $26.1 billion, the biggest monthly increase on record!

Americans see the raging mania: “bad time to buy a home” and “good time to sell a home” sentiments spike to record levels. See the following two charts.

Housing-Sentiment-2021-07-07

US-Fannie-Mae-Housing-Sentiment-2021-07-07

Wolfstreet, a financial reporting group, hypothesizes that – if these sentiments play out in reality, future demand by potential buyers at these crazy prices will be weak; and the future supply of homes that sellers want to cash out of at these crazy prices will come out of the woodwork.

So what is the likely scenario concerning house price expectations? Here is one take on the background of what is happening:

  • The consumer in terms of credit is tapped out.
  • Wage growth is anemic – see here.
  • House price expectations are “crazy” too high.
  • Income to house prices is at trend highs.
  • Federal Reserve officials talked tapering at their most recent meeting, but few seemed in a rush to get the process going, according to minutes released. This would be house price positive.
  • Global PMIs are starting to roll over – as the post-Covid economic bounce back is over.
  • Currency debasement fears have driven buyers to be buyers as an inflation hedge.
  • There has been considerable movement driven by the post-Covid drive to run from crime-ridden and draconian lockdown areas, pending any potential future Covid “pandemic” waves.

So will economic growth, wages, and supply come to meet the demand and support the current prices to go even higher – or, will the bubble pop and a collapse is imminent. The latter would seem the more likely scenario assuming the Fed does not save the market – which is always a possibility.

Here is more analysis in terms of housing, but give us your take on these economic reports and the next direction the housing market will take in the comment section below.

 RWR original article syndication source.

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Written by Tom Williams

Born down on the farm in America's Midwest, my early life was spent climbing the ladder via a long career in information technology. Starting as a technician, and after earning a degree going to night school, I eventually found a place working at ATT Bell Laboratories as a software engineer.

Later moving into management and then a long stint in a major management consulting firm working with major banking, telecommunications, and retail companies. Working in various states in America, I also spent considerable time living and working in several European countries - currently expat in France. As a side career, I was heavily involved in real estate development and an avid futures trader. This experience can give one a unique view of the world.

The storm clouds of dark change are near. Today America is at a crossroads. Will it maintain its prowess as a national leader in the free modern advancing world, or will it backtrack in the abyss of the envy identity politics of tyrannical socialism, and the loss of individual freedoms. The 2020 election may have decided this. Join the Right Wire Report team and make a stand.

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  1. Blue you are right on all these indicators but the biggest monster will be the loan bubble which will drag everything else thanks for doing this story it needed told

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