Springtime in America, which is just around the corner, brings many fine traditions. The crack of the bat on baseball diamonds. Children rolling Easter eggs on the White House lawn. Families putting out dusty, old furniture in yard sales. There is, though, one ritual that towers above all others in its sheer financial importance: spring selling season, when the housing market comes to life—or, on rare occasions, fails to do so. It may be the single biggest determinant of the global economic outlook for the rest of this year, with a recession at one end of the spectrum and the softest of landings at the other.
The importance of American housing resides not so much in its absolute size, big though it is at about $45trn in total value. Rather, it serves as a bellwether of the economy’s performance amid rising interest rates. Has the Federal Reserve lifted by rates enough to calm inflation without crushing growth? Has it gone too far? Or, perhaps, not far enough? As one of the earliest and largest sectors to react to changes, the property market offers answers.
Until the past month, the evidence seemed clear. Even before the Fed started jacking up its policy rate, mortgage lenders, anticipating the bank’s tightening, had started charging more. From 3% at the end of 2021, the rate on 30-year fixed mortgages surpassed 7% by October, the highest in more than two decades. Lo and behold, activity quickly tailed off. Buyers stayed on the sidelines. Builders scaled back new construction projects. Sellers trimmed prices. So far, so predictable.
But recently, signs of an early and largely unexpected rebound have emerged, prompting concerns that higher rates are not having the desired effect. New home sales jumped in January to a ten-month high. Surveys gauging the confidence of both homebuilders and homebuyers