Is the Housing Market Putting the Fed in a Box?
The impact of higher rates on housing affordability could give the Fed pause in its tightening plans.
This week, some initial housing data was released as well as news on industrial production. Monthly manufacturing data looked exceptionally strong. Even year-over-year data continued its slow and steady progress driven by an improving oil patch and increased use of electronic components in more common devices.
Builder sentiment looked strong, with a reading of 70, which should mean at least a few more good months, though we are concerned that the housing market has tended to peak at levels close to where we are now. Data on housing permits and starts continue to support our belief that housing will stay an important contributor to economic growth. However, a soft multifamily market and slightly softer single-family data suggest that housings contribution to GDP growth will be little improved, if any, from 2016's relatively small 0.2% contribution.