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US Housing Sector Strengthens

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US Housing Sector Strengthens

The US Mortgage Bankers Association has just published details of last week’s Mortgage Applications. This leading housing market indicator has come in at 4.5% compared to last week’s 4.3%.

The US housing sector is proving very robust during the early stages of this recovery, this area of the economy is being particularly spurred on by persistently low interest rates. Not just the current low lending rates but the low future rates across the yield curve, this phenomena is being caused by the Federal Reserve’s determination to maintain loose monetary policy for as long as possible.

The Fed’s loose stance however may not last as long as markets are anticipating. Inflation, which had previously remained cooperatively low, is now beginning to creep higher. Not by any significant amount but certainly by enough to become a concern, if not a priority, for the Federal Reserve.

Markets are now wondering if the Fed has perhaps overdone the economic stimulus. Fed chair, Janet Yellen, however does not directly support this hypothesis. The Central Bank chief is pointing to the labor markets as the culprit for rising us prices, it is in fact wage inflation that is covertly driving the US Consumer Price Index higher.

Wage growth appears to have crept up on the monetary authorities, particularly in light of the unemployment situation that still remains elevated. The Fed chief has some breathing room in this respect, wage inflation is estimated to be approximately half of one percent higher on the year. This compares to productivity gains that are currently running at 1.2%.

There is no immediate cause for a panic reaction from the US monetary authority, in fact the Fed, although concerned, is more likely to adopt a wait and see approach. Should the need for action be identified it is likely to come in the form of an acceleration of the tapering program rather than an increase in interest rates.

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