Why housing is the key to the next Fed pivot

The US faces a perfect storm of rising financing costs, squeezed demand and increased supply

Over the last century, housing has helped define the swings in the economic cycle, being a key driver of investment, employment, and consumption (especially white goods). As one recent research paper put it. “Housing IS the Business Cycle”.

Easy monetary and fiscal policy, post-pandemic, has helped fuel 20 per cent US house price inflation (the fastest seen since December 1946). 

Three-year house price inflation of 46 per cent in nominal terms and 28 per cent in real terms has only been matched by the bubbles of the early 1980s and mid-2000s in the past 70 years. 

Historically, US rate cycles typically only turn as the Fed is forced into easing by financial crisis. It is unlikely that this time will be different.

FT 1 August 2022

https://www.ft.com/content/8a1437fb-5f0b-4734-9839-8d41dacad27a

Sky-high housing prices still threaten to complicate the Federal Reserve’s inflation fight

MarketWatch 10 August 2022

https://englundmacro.blogspot.com/2022/08/sky-high-housing-prices-still-threaten.html