U.S. Markets close in 1 hr 49 mins

Housing Market Rebound? Not So Fast Says Economist


Click! Follow Us on Facebook!

Existing home sales data for February were released this morning and the results were slightly weaker than expected. February sales dropped to a 4.59 million annual run rate; 0.9% lower than January's revised 4.63 million figure. According to Bloomberg, analysts had been expecting 4.61mm.

With rates for 30-year mortgages creeping back to 4% and Fed Fund Futures suggesting higher rates to come, Breakout welcomed RBS senior economist Michelle Girard to tell us just how concerned we should be about these trends and what they mean for the recovery.

In the attached clip Girard tells me the markets best get used to a slowdown in the pace of improvement. "We've been a little spoiled in the last couple months when all the housing numbers have surprised us to the upside," she says.

The gains of the last few months have been driven at least in part by warm weather during the Winter That Never Happened on the East Coast. The warm weather had the effect of flattening the seasonal demand for housing, according to Girard.

"People have already been out shopping" says Girard. "In the Springtime the numbers won't look quite as good as they did in the winter, simply because we already saw that activity taking place."

The economist takes a more positive view of this data, suggesting increased consumer confidence and jobs data will keep the housing recovery on track, slow though that path may be.

Girard isn't sweating higher mortgage rates, either. She thinks the positive mood and jobs data in America, not to mention a sense of urgency driven by the prospect of rising rates, will help get potential buyers "off the fence," particularly with rates still at historically low levels.

As for rates continuing their recently rising trend, Girard believes the jury is decidedly out.

"2013 is still a year of great uncertainty because we have so much on the fiscal side that has to be decided," she says. The combination of Bush-era tax cuts expiring and mandatory spending cuts have the potential to stop any nascent recovery dead in its tracks.

Girard says rates "should" be inline with nominal GDP. "If we have the economy growing at 2.5% and inflation lets say 2%, then nominal GDP of 4.5% would suggest that 10-year yields should be a lot higher than where they are today." By Girard's math that would mean the 10-year would roughly double in yield from the current 2.30%.

Will it happen? You should hope so. Rising rates correspond with higher stocks and improving economies. At least under normal circumstances.

After 5 years in the economic gutter we could all use a little normal right about now.

As always, we want to know what you think. Let us know in the comment section below, Tweet me @Jeffmacke or visit us on Facebook.