The housing market recovery may be strong enough to charge ahead despite the Federal Reserve’s decision to scale back its stimulus program.
The Fed said Wednesday that it will start reducing its purchases of U.S. Treasuries and mortgage securities, a policy that has been in place since 2008 aimed at spurring economic growth. Economists and market watchers have fretted that the central bank acting to remove stimulus could slow the critical housing market by causing mortgage rates to shoot up and undercutting home sales.
Some data suggest that the ongoing rebound in housing is proceeding apace. New home construction has topped expectations and is now at its highest level
since February 2008, or just before the economy came unglued. Homebuilders also reported more confidence in the market
in December, following three months of relative weakness. More confidence means
more homes going up next year.
The biggest chink in the armor is weak existing home sales, which declined more than expected in November, falling 4.3 percent. But even that decrease isn't as bad as it looks. Pending sales stabilized in the most recent month of data, declining only slightly in October. About 80 percent of pending sales turn into existing sales within two months, according to the National Association of Realtors.
“Since the most negative read on pending home sales occurred in September, it appears that the worst may be behind us on existing home sales, provided pending home sales start to trend up as we expect,” according to Goldman Sachs.
With momentum in housing, combined with the stock market yawning at the Fed’s cutback and better-than-expected GDP growth last quarter, fears of removing the stimulus may be overblown.
Not all experts are convinced that the housing market will shrug off the expected uptilt in mortgage rates next year. And if the real estate sector slows, Fed officials may be inclined to keep monetary conditions loose.
"With mortgage rates likely to hit new cycle highs over the next few months, we think the chance of a serious housing market retrenchment is higher than the Fed might care to admit," said Ian Shepherson, chief economist with Pantheon Macroeconomics, in a note to clients. "We can’t think of anything outside the geopolitical sphere more likely to persuade the Fed to pause in its... tapering than a housing market rout, so these data have to be watched closely."