Janet Yellen, in her recent testimony to Congress raised the possibility that the housing slowdown, seen in the first quarter of this year, could end up being more prolonged than a winter lull. She hinted that housing was an important downside risk for the U.S. economic outlook that could loom large in debates on monetary policy.
The National Association of Homebuilders’ housing market index has dropped more than 10 points since January. So is the U.S. housing recovery still on fragile ground? We get some important new data points to help gauge the pace of the housing slowdown next week when April existing and new home sales are released. We are forecasting improvement on both new and existing home sales on the month.
Here are some of our reasons for near-term optimism on housing.
First, job and income growth appear to be on the rise. Initial jobless claims fell below 300K last week, the best reading on jobless calms so far in this expansion.
Second, 30-year mortgage rates remain historically low, averaging 4.2 percent last week.
Third, home price appreciation is decelerating at the national level.
In short, rising incomes, lower interest rates, and slowing home price appreciation have all helped rebuild housing affordability after sinking to expansion lows last August.
So while housing has had some trouble adjusting to the rate and price shock that occurred last year, we expect the combination of a stronger economy, pent-up housing demand, and low interest rates to rekindle some positive momentum to the housing market in the months ahead.
To find out more, check out this week’s US Outlook Report: Bank of the West US Outlook 05.16.14
Tags: economy