Surprise Shift to Home Price Stability Raises Questions Around Crypto's Economic Ties

Goldman Sachs recently upgraded its US home price forecast from a drop this year to slight gains in 2023-2024. The unexpected resilience challenges assumptions that housing weakness will weigh on growth and interconnected markets like crypto.

Revising Downside Projections

Goldman analysts previously predicted home prices would fall nearly 2% in 2023 as high mortgage rates eroded affordability.

But prices have stabilized since early 2022. Goldman now sees a mild 1.8% increase this year and 3.5% rise in 2024.

Persistent Housing Demand

Despite record low affordability, demand has exceeded expectations. Household formation and turnover are compensating for unaffordability.

Supply also remains tight with new construction lagging. These trends have buoyed prices against initial downside risks.

Impacts on Crypto Market Theories

Some connect crypto asset values to the housing market given wealth effects from major asset holdings.

But housing's surprising stability questions these linkages. Crypto has plunged while housing held up.

Broader Economic Resilience

Housing also impacts growth outlooks tied to crypto markets. Its resilience points to broader economic durability amid rate hikes.

This complicates macro assumptions around crypto trading like recession and inflation.

Nuanced Economic Ties

Crypto may correlate with certain equities but diverge from housing markets. This underscores crypto's nuanced macro connections.

Painting crypto as a simple barometer of growth appears dubious given complex asset relationships.

Evolving Macro Environment

Shifting housing outlooks further show the fluid economic backdrop for crypto. Narratives require updating as conditions change.

But crypto's independence from macro winds remains questionable despite confounding data points.

How Closely Is Crypto Correlated to Real Estate Trends?

Diverging crypto and housing moves challenge assumed linkages. But over long-term cycles, are digital assets and real estate broadly correlated?

Theoretical Connections

Some posit crypto should track housing closely as a large alternative asset class influenced by monetary policy.

Wealth effects from housing gains could theoretically boost risk tolerance and crypto investment.

Nuanced Correlation Evidence

But empirically, crypto and real estate correlations appear inconsistent over different time horizons.

Short term divergences emerge, but long-term relationships are plausible as rates impact both markets.

Demographic Differences

Housing has broad ownership while crypto skews toward younger tech-savvy groups. Demographic differences muddy correlations.

Millennial homebuying may show clearer crypto connections than existing owners.

Monitoring Shifting Correlations

More data is needed across market cycles to firmly establish correlations. They may strengthen over time with increased adoption.

Or idiosyncrasies of each asset could overwhelm broad economic links.

Conclusion

Contrary to downside assumptions, home prices have stabilized despite unaffordability. Crypto's divergence from housing highlights the complexity of its macro drivers. While theoretical ties exist, crypto and real estate correlations remain nuanced. Demographics, time horizons, and market cycles heavily influence relationships. Idiosyncratic factors could override intermarket connections but more data is needed, especially as adoption increases. For now, housing underscores crypto's uneven relationship to economic indicators.

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