Jay Powell is on the warpath, he thinks. Some aren’t so sure, though. At his last press conference, the one held on September 26 after the last “rate hike”, someone in the media actually asked him about the impact of rising interest rates. And not in a good way.
His answer would apply to a broad cross section of the economy. He keeps saying it is strong and in need of less “accommodation” if not the end to a decade’s worth. Yet, when confronted with public perceptions, as opposed to eurodollar reality, Powell would have to demure on several related topics.
One of those was housing. For a booming economy, something’s up in the real estate market. Rather than come right out and state the obvious, Powell merely said that housing was more affordable today than it was before the crisis. That’s only true if you have a job, which fewer people as a percentage of the population do.
It was also a total dodge. Why? Just ask the FOMC in August (meeting minutes from the one before September):
Residential investment declined again in the second quarter. Starts for new single-family homes were little changed, on average, in May and June, but starts of multifamily units declined on net. The issuance of building permits for both types of housing was lower in the second quarter than in the first quarter, which suggested that starts might move lower in coming months. Sales of existing homes edged down in May and June, while sales of new homes moved up on balance.
The economy is booming but housing is not, even though it arrived at this boom already at historically low levels. Those FOMC minutes would mention housing one more time, in reference to where the Fed might get it wrong. “Other downside risks cited included the possibility of a significant weakening in the housing sector.”
The Census Bureau reports this week that residential construction spending has tailed off. This despite weak growth in the sector dating back more than a year; already weak getting weaker still. The labor market is booming, at least according to the unemployment rate, and yet there isn’t much appetite for new structures.
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