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Why an Economic Revival Would Hurt the Housing Recovery

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Although some segments of the real estate market – like commercial real estate and small multifamily rental properties – are performing relatively well, the residential home segment has obviously been taking a huge hit the last few years.

While industry pundits have been hoping a revival in the economy would help revitalize the sagging housing market, in truth, a strong recovery could end up doing more harm than good.  The Federal Reserve is already seeing evidence of this as strengthening Treasury Yields drag mortgage rates up with them.  Further proof has been presented by flagging mortgage-loan applications for the week ending March 16.

At 4.19%, mortgage rates are still at historical lows but any further movement upwards could dangerously sensitize purchasers and hamper the first tentative steps the market has taken towards a recovery.  February data has already dealt a blow as home sales registered figures that were below market expectations.

The Federal Reserve Bank has already made clear in the past that a recovery in the housing market is vital for the revitalization of the overall economy.  All eyes are now trained on this institution to see how it deals with the housing pickle.  Some courses of action present themselves but the worry is that in correcting the housing problem, they may inadvertently interfere with the recovery of the economy.

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