Ten Financial Questions for 2022

by Calculated Threat on 12/26/2022 02:45:00 PM

On the finish of every yr, I submit Ten Economic Questions for the following year (2022). I adopted up with a quick submit on every query. Right here is evaluation (we do not have all information but, however sufficient).  I’ve linked to my posts from the start of the yr, with a quick excerpt and some feedback.

I haven’t got a crystal ball, however I feel it helps to stipulate what I feel will occur – and perceive – and alter my thoughts, when the outlook is incorrect.  For example, when the pandemic hit, I switched from being principally constructive on the financial system to calling a recession in early March 2020.

Realtor Active Inventory

This was right.

Here’s a graph from Realtor.com exhibiting lively stock via November 2022.

As anticipated, stock hit new document lows early in 2022, and is ending the yr up considerably year-over-year – however not near the 2017 – 2019 ranges.

Be aware: The NAR reported stock was up 2.7% year-over-year in November in comparison with November 2021. This seems to incorporate some pending gross sales and doesn’t match another measures of stock (Altos and Realtor.com).

9) Question #9 for 2022: What will happen with house prices in 2022?

“[B]ased on my stock forecast and additional progress with the pandemic, my guess is that year-over-year value will increase will most likely be the strongest early within the yr, after which soften in the direction of the tip of 2022. Value appreciation will lower from the unsustainable 2021 tempo however appears more likely to nonetheless be within the mid-to-high single digit vary in 2022.”

Case-Shiller House Prices IndicesThis was principally right. The year-over-year change within the Case-Shiller index peaked in March 2022, after which softened because the yr progressed.

As of September, the Nationwide Case-Shiller index SA was up 10.6% year-over-year. (Case-Shiller for October will likely be launched tomorrow).

Home costs are actually falling month-to-month, however it seems costs will nonetheless be up mid-single digits in December.

8) Question #8 for 2022: Housing Credit: Will we see easier mortgage lending in 2022?

“Mortgage fairness withdrawal will most likely decline in 2022, since fewer householders will refinance their mortgages. Nonetheless, there may be some concern about banks easing lending requirements, and the fast improve in non-QM loans. This will likely be one thing to observe in 2022, however total lending remains to be strong (not like through the housing bubble).”

Mortgage equity withdrawal was stunning nonetheless strong in 2022 as householders switched from refinancing current mortgages to utilizing dwelling fairness loans (2nd loans) to extract fairness from their houses.

Banks usually tightened standards on mortgage loans.

7) Question #7 for 2022: How much will Residential investment change in 2022? How about housing starts and new home sales in 2022?

“My guess is begins will likely be down low-to-mid single digits year-over-year in 2022. New dwelling gross sales might decide up solidly if current dwelling stock stays low, provide points are resolved, and mortgage charges keep low, however my guess is new dwelling gross sales will likely be principally unchanged year-over-year.”

Through November, whole begins, year-to-date, have been down 1.2% in comparison with the identical interval in 2021. New home sales have been down 15.2% in comparison with the identical interval in 2021. Begins have been as anticipated, however new dwelling gross sales have been down as mortgage charges elevated faster than anticipated.

6) Question #6 for 2022: Will the Fed raise rates in 2022? If so, how many times?

“At the moment I count on asset purchases to finish as deliberate in March, and the first price hike to occur on the March assembly, and maybe a 2nd hike in June. Subsequent price hikes will rely on the course of the pandemic, inflation and employment, however 3 price hikes in 2022 appear probably.”

Big miss.  Inflation was a lot larger than I anticipated, and the Fed raised charges way more the anticipated.

5) Question #5 for 2022: Will the core inflation rate increase or decrease by December 2022?

“The pandemic was the reason for the inflation spike, with provide constraints, a shifting of demand from providers to items, giant fiscal transfers, and a smaller labor pressure pushing up wages. If the pandemic eases, I count on these pressures to ease. My guess is core PCE inflation (year-over-year) will lower in 2022 (from the present 4.7%), and I feel core PCE inflation will likely be at or under 3% by the tip of 2022.”

Based on the November Personal Income and Outlays report, the November PCE value index elevated 5.5 % year-over-year and the November PCE value index, excluding meals and vitality, elevated 4.7 % year-over-year. Inflation was larger than anticipated however has been slowing just lately.

4) Question #4 for 2022: Will the overall participation rate increase to pre-pandemic levels (63.4% in February 2020)?

“My guess, based mostly on the impression of the pandemic easing, is that almost all of those individuals will return to the labor pressure. I do not count on that participation price to extend to pre-pandemic ranges (63.4%), however it appears affordable the participation price will improve to the mid 62s by yr finish, earlier than trending down once more later within the decade.”

This was principally right.  The Labor Force Participation Rate was at 62.1% in November. 

3) Question #3 for 2022: What will the unemployment rate be in December 2022?

“Relying on the estimate for the participation price and job development (subsequent query), my guess is the unemployment price will decline into the mid 3% vary by December 2022 from the present 4.2%.”

The unemployment rates was at 3.7% in November.

2) Question #2 for 2022: Will the remaining jobs lost in 2020 return in 2022, or will job growth be sluggish?

“My guess is one thing like 2.5 to three.0 million jobs could possibly be added in 2022, however it can rely on the pandemic (and coverage). This matches with my view of sluggish labor pressure development, a rise within the participation price, and a decline within the unemployment price. That may imply there are nonetheless fewer jobs on the finish of 2022, than earlier than the pandemic.”

Employment Recessions, Scariest Job ChartAs of the November employed report, the year-over-year change was +4.9 million jobs – properly above my guess.

This graph reveals the job losses from the beginning of the employment recession, in proportion phrases.

The present employment recession was by far the worst recession since WWII in proportion phrases.

As of August 2022, the overall variety of jobs had returned and are actually 1.044 million above pre-pandemic ranges.

1) Question #1 for 2022: How much will the economy grow in 2022?

“My sense is development will sluggish in 2022 noticeably. Some sectors, like automobile gross sales, will decide up since automobile gross sales have been provide constrained in 2021. Different sectors will proceed to recuperate (like journey associated) and repair sectors. Nonetheless, some items sectors will probably decline, and actual property will probably be principally flat in 2022. Additionally, fiscal and financial provide will give much less of a lift in 2022. My guess is the true GDP development will most likely be within the 2.5% to three.5% vary in 2022.”

It now seems GDP development will likely be underneath 1% in 2022.

My greatest misses have been on inflation (and Fed coverage), GDP (too optimistic) and employment (too pessimistic). 

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