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Can the Housing Recovery Handle Higher Rates?
Tuesday, May 19, 2015
That headline question is the focus of the May Economic and Housing Outlook produced by
Freddie mac's Office of the Chief Economist.
The economic team, headed by Leonard Kiefer, Deputy Chief
Economist, notes that housing stumbled in 2013 when rates rose by a full
percentage point in May and June of that year.
Sales slowed in response and are only now recovering to their levels
before that event. Are we due for a
The first quarter of 2015 showed some economic
weakness. Real GDP growth was
preliminarily estimated at 0.2 percent annualized but indications are the final
number will dip below zero. The second
quarter looks better but below 2014 returns yet improved European economic news
has driven U.S. interest rates higher and Freddie Mac expects
they will continue to rise over the remainder of this year. How fast will be a function of international
and domestic economic growth, Federal Reserve policies, and what markets expect
from these three factors. There could be
significant volatility around any Fed policy changes with expectations that the
central bank may raise the Fed Funds rate as early as next month but more
likely in the fall. If the Fed continues
on its current path, rates will likely start rising by midsummer although they
may have already started the expectations cycle.
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