The housing market seems to be out of the controlling grasp of the Fed these days. In a Floyd Norris column this weekend “Unending Housing Boom Tosses Aside Rate Increases and the Old Rules” [NYT] he makes the following observations:

  • The current housing boom has survived 11 rate increases by the Fed
  • The Fed said housing was now cooling yet 183,000 housing starts occured in September
  • The current housing boom has fewer starts than the peak in 1972
  • The volume of housing starts does not have the same volatility as it did 20 years ago

Whats different now?

  • S&L’s used to have to stop lending when Fed rates went above levels banks could pay on savings
  • The Fed is now having trouble slowing the boom as creative financing keep payments affordable
  • Builders hear the Fed’s concerns over excess supply but their customers keep buying
  • The market has changed, 44% of housing starts were multi-families in 1972 and its now 17%
  • Single family development dominates residential construction

Also see The Unending Housing Boom [Big Picture]


One Response to “Housing’s Booming Lack Of Volatility”

  1. John Philip Mason says:

    If my memory serves me well, it takes about 18 months for changes in the Fed rate to realize their full effect. So if the first rate increase was in June, 2004, that means we should start seeing something right about….now! And let’s not forget the ten subsequent rate increases, the effects of which will work their “magic” over the next 18+/- months (barring no further changes to the rate). Let’s hope they haven’t over-steered the boat?

    On the other hand, could it be that we are witnessing the world economy at work? And, dare I ask; has this reduced the power of the Federal Reserve Bank of the United States of America? Despite the Feds raising rates 11 times, long term mortgages rates remain low, as foreign investors continues to pour piles of money into mortgage backed securities.

    It is important to note, despite most of the economy taking 18 months to realize the effects of changes to the Fed rate, mortgage rates typically react in nanoseconds.