Chris Hamilton of Econimica: https://econimica.blogspot.com/2021/11/housing-employment-inflation-and-2022.html
Housing, Employment, Inflation, and 2022
Some times saying less can say more. Given that, I’m going to offer four variables relating to housing and hopefully let them and their relationships do the talking.
1- US median home price versus total US employees. 1970 through 2021 (YE est.).
Since 2019:
—Home prices +28%
—Total Employees -1.9%
2- Year over year changes in median house prices versus YoY changes in total US employees. Worth noting the accelerating divergences between home price appreciation and employees highlighted in the four boxes below.
3- Same chart below, but inclusive of periods of Federal Reserve rate cutting cycles. Hmmm.
4- Time to add in one last variable, year over year changes in Federal Reserve holdings of MBS (mortgage backed securities). Hmmmm.
As the Federal Reserve embarks on its tapering (decelerating purchases) of MBS, as the growth in employment has begun its natural deceleration as “full employment” of the working age population nears (detailed below), and as inflationary pressures suggest the Fed should consider rate hikes…remember these charts and the impact on home prices.
Why US will reach full employment in 2022 and cease further employment growth…detailed below.
1- 15 to 64 year old US population versus those employed among that age group.
1.1- While many housing pundits discuss a housing shortage, I offer the same view of the working age versus total US housing units.
1.2- To ensure the “housing shortage” is shown in full, I show the full US population to total housing ratio…and rather than a shortage, the US is at an all time high of housing units per capita (back to the previous peak seen in 2008).
2- Year over year change in 15 to 64 year old population versus year over year changes in employment among them. Population growth is the natural governor to potential employment growth…regardless interest rate cuts, debt, QE.
3- Pulling together the variables, working age population / those employed among them versus the Federal Funds rate % (black), marketable US federal debt (red), and Federal Reserve balance sheet (yellow). As population growth has decelerated, federal government and Federal Reserve have substituted cheaper debt, more debt, and QE to maintain artificially high consumption / “growth”.
4- Lastly, the population to employment ratio is rapidly heading for “full employment” typically hit around 72% (that is, since women became fully integrated into the labor force). At that 72%’ish point, typically employment growth ends, economic growth ends, and the next round of interest rate cuts / federal debt / Fed balance sheet growth ensues.
So, just as the Federal Reserve is attempting to tame a housing bubble via undertaking tapering and discusses dot plot rate hikes in 2022, and inflation runs amok…the demographic / employment cycle is already nearly tapped out…typically the sign of impending Federal Reserve rate cuts / balance sheet expansion, and federal government debt fueled stimulus. Those concerned about impending hyper-monetization perhaps leading to hyper-inflation quickly followed by a hyper-deflationary depopulationary depression may not be as crazy as they seem?
Econophysics2020 