Fed Preview: Central Housing

Economists say the drag on growth from residential housing investment is running its course. The commercial real estate market has picked up the slack, providing jobs and business to construction workers and supporting related industries.

That said, "the housing market remains the biggest risk to our outlook," write John Shin and Michelle Meyer, economists at Lehman Brothers, who predict housing prices will level off and consumer spending slowly moderate. "We cannot entirely rule out a worse outcome if homeowners panic."

Panic could well come from higher interest rates. Heading into the January FOMC meeting, the average 30-year mortgage is at 6.41% as of Jan. 24, up from 5.98% in early December, according to the Mortgage Bankers Association (MBA).

Baby Steps, Springtime Dreams

Rising rates have driven down mortgage application and mortgage refinancing activity in the past couple of weeks, according to the MBA. In the week ended Jan. 24, refinancing activity dropped 9.6%, while purchasing fell 8.4% -- their lowest levels since late September and early November, respectively.

Although the fall in mortgage activity doesn't derail the notion that new- and existing-home sales have bottomed, the process of recovery is in its infancy, says Miller Tabak chief fixed-income strategist and RealMoney.com contributor Tony Crescenzi.

"For the uptick [in home sales] to matter even more, it must last through the spring when not-seasonally adjusted sales are at their peak," he writes. "Inventory levels will remain burdensomely high unless sales are stable or slightly rising into the summer."

Eating through inventory "will take time," he writes.

« Previous Page

1 2 3 4

Next Page »