From the WSJ:
The Federal Reserve remains concerned about the U.S. housing recovery–which began to slow down last year when mortgage rates spiked–and has so far has failed to regain much traction, Chairwoman Janet Yellen said Tuesday.
“The housing sector…has shown little recent progress,” Ms. Yellen said in remarks prepared for delivery before the Senate Banking Committee. “While this sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year’s increase in mortgage rates, and readings this year have, overall, continued to be disappointing.”
Her comment Tuesday reinforced a warning she offered when testifying before lawmakers more than two months ago. On May 7, Ms. Yellen told the Joint Economic Committee that “readings on housing activity–a sector that has been recovering since 2011–have remained disappointing so far this year and will bear watching.”
Several broad gauges of housing-market activity stumbled last year after mortgage interest rates rose when the Fed began discussing the end of its bond-buying program, which now is on track to end later this year. The average interest rate on a 30-year fixed rate mortgage rose from 3.35% in early May 2013 to 4.51% in mid-July 2013, according to Freddie Mac. Rates have come down since then, to an average of 4.15% last week.
But while the rise in rates is “the most obvious explanation for the weakness in the housing market over the past year,” it “seems unlikely that interest rates are the whole story,” according to the Fed’s semiannual Monetary Policy Report, also released on Tuesday. “Historical correlations between mortgage rates and residential investment suggest that the effects of last year’s run-up should have begun to fade by now, but housing activity has yet to pick up.”
It also said that “ongoing increases in house prices may indicate that constraints on the supply of new housing are binding more significantly than seemed to be the case.”