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As the feds pull back, can U.S. housing stand alone?
For months, investors` favorite parlor game has been betting on the timing—and the impact—of the Federal Reserve`s decision to raise its benchmark interest rate from its current near-zero level. But there`s a key sector of the economy where a Fed return to normalcy is set to play out much sooner: housing.
Sales of both existing and new homes fell in February for the third and fourth straight months, respectively. Yet at the end of March the central bank will withdraw a big support under the housing market when it ends its $1.4 trillion program to purchase mortgage-backed securities and housing-agency debt. A month later the federal home-buyer tax credit expires. Some housing watchers fret that one-two punch could send the sector back to the mat.
A growing number of economists, however, believe that a pickup in employment this spring, cheap credit, and a glut of affordable homes will allow housing not only to withstand the removal of government help in 2010 but also to contribute to U.S. annual economic growth for the first time since 2006.
Employment is key to this outlook. Morgan Stanley (MS) economist David Greenlaw forecasts as many as 300,000 new U.S. jobs in March, the biggest monthly increase in four years, because of milder weather, government hiring of temporary workers for the U.S. Census, and a growing economy.
Credit conditions also may be improving. A net 13.2% of banks surveyed by the Fed in January reported that they tightened lending standards on prime mortgages in the fourth quarter. That`s the smallest percentage in three years.
Read the full article here.
For months, investors` favorite parlor game has been betting on the timing—and the impact—of the Federal Reserve`s decision to raise its benchmark interest rate from its current near-zero level. But there`s a key sector of the economy where a Fed return to normalcy is set to play out much sooner: housing.
Sales of both existing and new homes fell in February for the third and fourth straight months, respectively. Yet at the end of March the central bank will withdraw a big support under the housing market when it ends its $1.4 trillion program to purchase mortgage-backed securities and housing-agency debt. A month later the federal home-buyer tax credit expires. Some housing watchers fret that one-two punch could send the sector back to the mat.
A growing number of economists, however, believe that a pickup in employment this spring, cheap credit, and a glut of affordable homes will allow housing not only to withstand the removal of government help in 2010 but also to contribute to U.S. annual economic growth for the first time since 2006.
Employment is key to this outlook. Morgan Stanley (MS) economist David Greenlaw forecasts as many as 300,000 new U.S. jobs in March, the biggest monthly increase in four years, because of milder weather, government hiring of temporary workers for the U.S. Census, and a growing economy.
Credit conditions also may be improving. A net 13.2% of banks surveyed by the Fed in January reported that they tightened lending standards on prime mortgages in the fourth quarter. That`s the smallest percentage in three years.
Read the full article here.