In his recent interview with Fox Business, Jeffrey Gundlach explained why a recession is likely in 2023. Here’s an excerpt from the interview:
Gundlach: We’re starting to see the real reasons to believe that… maybe not here in 2022, but in 2023, we may see a real recession because let’s think about it Charles, home prices.
Home price affordability has decreased very markedly in the past two years. Home prices are up 30% broadly in the United States for the past two years and mortgage rates on the 30-year fixed mortgage have doubled.
What that means is that the monthly payment for the same house from two years ago is now double. We also, you mentioned that things look pretty good in the aftermath of the money spray in response to the pandemic.
But you know a lot of that was consumption brought forward. One of my favorite charts is to look at the trend of personal consumption expenditures from durables, non-durables, and services.
For five years or four years going into the lock down prior to the pandemic all three of those series were rising very gradually and consistently, and at the same pace, and then when all the money spray happened we saw this explosion in durables, where it got 30% above trend, and we saw an explosion in non durable consumer spending, 20% now above the trend of that four-year period of stability and gradual price increases, or rather consumption spending increases.
What that means is we have to revert back down to trend. When you buy durables, when you buy a used car, when you buy an appliance, a refrigerator, it’s a durable and that means that you buy it very infrequently.
Those accelerated sales, we have to pay back for them. So when you put together the draw that we’re going to have from this spending [inaudible] brought forward, now we’re paying the price for.
For home price affordability being so bad and sentiment having collapsed, in the University of Michigan survey, there’s good reason to believe that we have a payback coming for having plugged the hole back in 2020 and 2021.
You can watch the entire discussion here:
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