Homebuilders See No Boost as Fed Caution Mounts

Further worries about the economy are coming from the Federal Reserve as homebuilders’ expectations drop.  According to a new study by the National Association of Homebuilders, firms see little signs of renewed strength in demand for new homes as prices continue to skyrocket and wages stagnate.

The NAHB’s Housing Market Index (HMI) remained at 58 for the third month in a row, despite expectations of an increase, leading to a “cautiously optimistic” outlook for construction growth this year, according to NAHB Chief Economist Robert Dietz.

Further worries about the economy are coming from the Federal Reserve as homebuilders’ expectations drop.  According to a new study by the National Association of Homebuilders, firms see little signs of renewed strength in demand for new homes as prices continue to skyrocket and wages stagnate.

The NAHB’s Housing Market Index (HMI) remained at 58 for the third month in a row, despite expectations of an increase, leading to a “cautiously optimistic” outlook for construction growth this year, according to NAHB Chief Economist Robert Dietz.

Demand for housing remains reliant on sustained low interest rates for mortgages, which fell to a 2016 low last week, according to a Freddie Mac study. “Solid job creation and low mortgage interest rates will sustain continued gains in the single-family housing market in the months ahead,” Dietz said.

NAHB Chairman Ed Brady was upbeat about the results, although they failed to meet expectations, as he said they indicated a steady recovery in the real estate market after the calamity of the 2008 Global Financial Crisis. “Builder confidence has held firm at 58 for three consecutive months, showing that the single-family housing sector continues to recover at a slow but consistent pace,” he said in a statement.

Nonetheless, current sales conditions declined by 3%, according to the study, although buyer traffic rose 2.3%.

Regionally, every area of the country has seen falling HMI scores, with the biggest losses in the northeast and west regions. Some attribute this to unseasonably cold weather in the west, causing forward expectations to be a bit more optimistic.

Monetary Challenges

The weakness in real estate is one symptom of a broader struggling middle class, who have found weak or no wage growth despite a sharp improvement in employment rates. This has driven significant softness in forward GDP growth expectations, and has caused the Federal Reserve to lower 2016 growth expectations more than once in the past year.

Now the Federal Reserve is taking a more aggressive outreach strategy to calm fears that continued stagnation will revert to another crisis. Recently, the four former and current Federal Reserve chairs met to discuss the economy and assure Americans that the economy is strong. More recently, Minneapolis Federal Reserve head Neel Kashkari released an interview in which he discussed, among other things, the need for a monetary policy that is responsive to present global economic headwinds.

“Clearly what happens in global financial markets, as an example, will affect the U.S. economy. We can’t be blind to the fact that actions we take could affect global economic developments, which in turn will have an effect on our economy,” he said in the interview, adding that monetary policy is one tool that can be used to ensure the U.S. economy remains resilient against foreign pressures. “We need to think about those feedback loops, and I believe that we do. It is one of the many inputs that we look at as we decide the optimum course of monetary policy.”

The Federal Reserve has already publicly said it will postpone interest rate increases, with many analysts believing another rate hike will not come until June at the earliest and, possibly, much later.