By Tom Williams
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.
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.
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.
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.