1996 or 1999? Top Economists: Inflation May Be Approaching a Turning Point, Consumption and Housing Expected to Recover Moderately

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Nancy Lazar, Chief Global Economist at Piper Sandler, believes that the current US economic cycle is highly similar to the mid-1990s—if oil prices have peaked and inflationary pressures begin to ease, consumer spending is expected to accelerate again, and the housing market will see a gradual recovery.

In a client briefing released Sunday, Lazar noted that if the recent decline in crude oil prices marks the end of the energy shock, real incomes will improve, supporting consumer spending. Meanwhile, three positive signals are emerging in the housing market: nominal personal income continues to rise, new home prices have fallen, and there is still room for mortgage rates to decline further.

Piper Sandler analysts define the current cycle as more akin to 1996 rather than 1999, believing this judgment offers important guidance for investor asset allocation—the former means a soft landing and moderate recovery, while the latter signals overheating and subsequent drastic correction.

1996, not 1999

Lazar’s central argument is built upon historical comparisons with the 1990s.

Her team highlights that the current cycle is more similar to the 1990s, when increases in housing prices and income growth were largely synchronized. The root reason is that the Fed did not keep interest rates below nominal GDP growth for long periods, as it did in 2005, 2015, and 2022.

Regarding specific policy paths, the analysts cite two historical similarities: the Fed cut rates by 75 basis points in 1995, and by a total of 175 basis points between 2024 and 2025; economic growth accelerated again in 1996, and industrial activity led an upturn in the second half of 2025.

Piper Sandler clearly distinguishes the current cycle from 1998.

In 1998, the Fed was overly accommodative, fueling late-cycle prosperity in the economy and markets, which ultimately became the 1999–2000 bubble. Analysts believe this round of Fed policy is relatively restrained, so the risk of excess bubble accumulation is much lower.

Housing Market: Triple Factors Drive Improved Affordability

Lazar’s team identifies three factors working together to boost housing affordability.

First, nominal personal income continues to grow; second, new home prices have declined; combined, the ratio of new home prices to income has fallen to a more affordable level.

Notably, new home prices are now lower than prices for existing homes, a rare phenomenon. Analysts believe this price gap will constrain existing home prices, making significant increases unlikely. Regionally, affordability indicators for existing homes in all areas have begun to show signs of improvement.

However, analysts also emphasize that despite the shift in direction, the absolute level of housing affordability remains low, meaning that this recovery still has considerable room for continuation.

Market Signals Already Show Positive Change

Piper Sandler has listed several leading indicators being closely monitored to verify the housing recovery’s sustainability.

Mortgage application volume has rebounded; the NAHB (National Association of Home Builders) Housing Market Index is projected to gradually rise; and foot traffic at home improvement retailers has bottomed out, showing slow recovery.

On the interest rate front, mortgage rates have markedly dropped from their post-pandemic peaks. If energy prices continue lower, there’s further room for rates to fall, providing additional momentum for a housing demand recovery.

History Rhymes, It Doesn’t Repeat

Lazar's team, while reaching these conclusions, also clearly acknowledges differences between now and the 1990s, expressing cautiousness with the phrase "history often rhymes, but doesn't repeat."

The analysts’ core judgment: If Fed policy remains relatively restrained, the risks of overheating and asset bubbles will be correspondingly reduced, and the current cycle is more likely to follow the 1996 trajectory rather than drifting into 1999-style late prosperity and subsequent drastic correction. For investors, the key variable to verify this judgment remains whether oil prices and the inflation turning point happen as expected.

Risk Warning and DisclaimerMarkets have risks, investment needs caution. This article does not constitute individual investment advice, nor does it consider the unique investment goals, financial situation, or needs of any specific user. Users should consider whether any opinions, views, or conclusions in this article suit their specific circumstances. Investments made based on this are at your own risk. ```