A “real housing recession” will lower inflation; Expect a ‘phoenix rise’ in bonds – Michael Gayed

(Kitco News) – The housing market looks bearish. Nearly 60,000 home sales plummeted in June and new home sales fell to their lowest level since April 2020.

Michael Gayed, portfolio manager of Toroso Investments, warned of a substantial correction in housing.

“What [markets have] not taken into account is a real housing recession,” he said. “Housing is only now starting to topple over.

Gayed spoke with David Lin, presenter and producer at Kitco News.

Stocks and bonds

Despite weakening home sales, stock markets are recovering. The S&P 500 is up 7.5% over the month and the NASDAQ 11% over the same period.

Gayed argued that despite recent stock market gains, stocks still have a downside ahead of them, which will be supportive for US Treasuries. He called this trend a “phoenix on the rise”.

“If you were to have another wave of equity declines, which I think is likely to happen, Treasuries will revert to their historic behavior, as a ‘safe haven’ [asset]”, he said. “You can actually make money then, in this classic risk environment.”

Although Gayed cautioned that he cannot predict the markets perfectly, he spoke in terms of “probabilities”. He pointed out that utilities are a sign of the overall changes in the stock market.

“Historically, utilities, the most boring sector of the stock market, tends to outperform before high volatility events for the overall market,” he said. “Utilities is the most bond-intensive sector of the stock market…In fact, when performing a short-term boom, utilities tend to lead major declines in equities.”



Immovable

In the United States, the median house price-to-income ratio is just above 8, the highest it has been on record. Gayed said “this affordability issue” will cause the housing market to correct, especially as energy and food prices tend to rise.

The FAO Food Price Index has fallen in recent months, but still remains the highest it has been on record.

“When the average person, who is not in the financial markets, begins to realize that their food prices are rising much faster than they ever thought, and their home heating bills, it’s going to drive down demand,” he said. “It forces you to choose between getting a house and facing a high mortgage payment, or paying for basic needs. That dynamic is still very much there.”

He added that house prices must come down to curb inflation, otherwise there will be “societal unrest” and “higher inflation”.

However, he said it would take some time for house prices to correct, because “you have institutions that are on the fringe, holding these properties that won’t necessarily be sellers, and the price is still fixed by the marginal seller”.

For Gayed’s take on the best investments, watch the video above.

Follow David Lin on Twitter: @davidlin_TV

Follow Kitco News on Twitter: @KitcoNewsNOW

Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

Leave a Comment

Your email address will not be published.