United States: Housing Starts decreased, so?19 January, 2011, 22:44. Posted by Zarathustra
Tags: Economy, Housing Starts, United States
Housing starts for December dropped to one-year low in December to 529,000, worse than the expected number of 550,000.
It probably would strength the case that the Federal Reserve has no way to exit quantitative easing or raising interest rate any time soon. That is one of the possibilities. On the other hand, inflation has been around in almost everywhere except the United States, although food and fuel costs made inflation picked up a bit, the core inflation is still virtually non-existent, and there are good reason to worry that inflation is returning even in the United States as yield curve is steepening, partly reflecting a higher inflation expectation. We also see crude oil price edging towards US$100 per barrel now, which is another bad sign. Although some have pointed out that the ability to increase production and the willingness of the Opec to do so will help to keep oil lower, there is very little certainty that they will really do so should oil price rise higher.
My key assumption on my Hong Kong real estate market forecast is that interest rates in the United States will start rising within 6 to 12 months. This is conservative relative to the consensus that interest rates will continue to stay low for longer because the housing market is still weak, and unemployment is still high. But inflation may be coming back quietly. The worst possible case would be that inflation is back even the housing market and job market are still weak, so the Federal Reserve would have to raise interest rate even the economy is still struggling. I am not assigning a high probability for this scenario to happen, but I think people should bear in mind that inflation is returning, and the consequence of having a stagnant growth and inflation happening together will be disastrous.