|
Fed Policy a Growing Concern for Housing
 |
|
Federal Reserve Chairman Ben Bernanke and NAHB President David Pressly. Photo by Herman Farrer | The Federal Reserve needs to keep a close eye on the impact of its monetary policies on housing in coming months to ensure that the industry slowdown that is now evolving will bring home buying and construction activity to sustainable and healthy levels and keep the economy on an even keel, according to NAHB Chief Economist David Seiders.
Following up on an April 25 meeting at which the NAHB Senior Officers and members of the association’s senior staff advised Federal Reserve Chairman Ben Bernanke of conditions in the housing market, including downside risks to a baseline forecast for a moderate and orderly decline in starts and sales this year, Seiders provided the chairman last week with additional information from the association’s regular surveys of its builder members.
“Mr. Chairman, we trust that you will keep the downside risks to the interest-sensitive housing sector in focus as you guide monetary policy management during the balance of 2006,” Seiders wrote to Bernanke.
Following records for single-family housing starts and new home sales in 2005, housing starts are on their way to a projected 6.1% decline this year, according to NAHB forecasts, and new home sales are expected to decrease by 12.9%. However, Seiders indicated that investors/speculators are now pulling out of the single-family and condo markets, creating some uncertainties for the marketplace.
Seiders reported to the Fed chairman that NAHB’s single-family Housing Market Index has been falling since mid-2005, and hit a reading of 45 in May, its lowest level since mid-1995, “an episode that also followed systematic tightening of monetary policy by the Federal Reserve.” Seiders added that there is a possibility the index will decline “somewhat further” in coming months.
In an address to the NAHB Board of Directors earlier this month, Seiders emphasized that “the U.S. economy definitely is slowing down at this time.” Seiders said that he expects the growth of the Gross Domestic Product to slow to a rate of 3% in the second half of this year and in 2007, which will prevent the economy from overheating and falling into a recession.
Seiders also said that the Fed appears to be approaching the end of its run of quarter-point hikes in its federal funds interest rate, although another incremental increase is possible at the next meeting of the Federal Open Market Committee on June 29.
Want to Know the Housing Starts Through 2014?
Find out in HousingEconomics.com’s Long-Term Forecast. HousingEconomics.com includes downloadable Excel tables featuring the housing starts forecast, GDP, demographics and more.
To learn more, visit www.housingeconomics.com.
Seiders Says, 'Builders Have Not Lost Touch With Demand' on the NAHB Economics Blog
NAHB Chief Economist David Seiders says that "builders have not lost touch with demand" on NAHB's economics blog, “Seiders on Housing” — an informal Internet-based forum dealing with economic issues, housing trends, survey research and other topics affecting the housing sector of the economy.
Log onto the blog at http://nahbblog.blogs.com and get direct access to Seiders' expert opinions, projections and responses. Then let Seiders know what you think by giving your perspective.
|
