The Wealth Effect
The ability to purchase a good may be highly related to one’s relative wealth. Over the past year we have witnessed such effect the stock market has on the prices of properties. Below shows how this wealth effect displayed on the NASDAQ effects the prices of homes this past year. As you might recall in my previous posts, the prices of properties have been behaving similar to that of a stock market chart with wide swings in a matter of a few months. Maybe this explains the choppy behavior. As you can see in the chart below, the NASDAQ fell in Sept and home prices began to follow, then as the NASDAQ rebounded so did home prices.
Prices took a dip at the beginning of Fall as expected, but this November prices shot back up to the highs we saw in spring. This is rare for a new bull-market to start before the New Year. Activity has been so hot this November and December that we could see this bull-market push right through the holidays and continue it’s climb from the base set this Fall. In a normal market, as seen over the past three years, prices would hit a high in Spring, flatten in summer, come down and build a base starting in Fall till the second week in January. All signs are pointing for the market to continue its climb into January and through to July.
Expect Big Gains in 2016
Looking at the forecast strictly from a perspective of this chart reader I see two reasons to expect huge gains this coming year.
1) As shown above this bull run has already started, in which usually is a slow time of the year allowing the market to digest it’s gains and build a new base. As shown in the chart above we’re very close to the highs set in spring.
2) The chart below shows us a cup with handle formation similar to the one that was being shaped during the bottom of the market in 2011-2012. You might recall that at that time I forecasted the bottom of the market and urged everyone I know to BUY. That year we saw prices increase 20% and continue to increase every year after. http://travwhite.com/california-real-estate-confirmed-bull-market/
Buy Here – The safest time to buy is after the bull market rally has been confirmed. Back testing has shown me that when buying into a new bull market, it’s safer to buy into the rally for fear of prices bouncing off the resistance line. Once confirmed you have a higher probability of prices to extend well beyond your buy in point.
Fed Funds Rate
Precedent has it that a bull market normally ends after a period of slowing momentum, or internal strength and after multiple rate increases by the Fed. It usually takes at least a few hikes of the federal funds rate to do in a bull. There have been none so far. Given that the funds rate is virtually at zero, i.e. any rate-hike phase would be starting from as low of a base as is possible, this time around it might potentially take more than a few raises to correlate with a top.
The backdrop remains benign. While the futures market implies a 68% chance of an interest-rate hike at the central bank’s Dec. 16 policy meeting, this is not a concern of the market. If it was, prices would not be near their previous highs.
It is important to recognize that no one knows what will happen in the future. The above view is just that, a view based on fact and historical precedent, not personal opinion or prediction. It is a long-term view that one should take into account with one’s personal strategy, finances, and future plans.
Have a blessed and Merry Christmas!