- DSNews - https://dsnews.com -

Housing Market to Remain on ‘Solid Trajectory’

American-flag-houseDespite signs of softness in several sectors of the economy reported recently, the housing market should remain on a “solid trajectory” for the rest of 2016, according to New York Fed President and CEO William C. Dudley in an address Friday at the University of Bridgeport, Connecticut [1].

Dudley said that despite the recent volatility in financial markets, his outlook for the U.S. economy remains the same—he expects the economy will expand for the rest of the year at a pace slightly above its long-term trend. While he does not expect the Fed to meet its 2 percent inflation objective this year, Dudley expects the factors holding down inflation will dissipate over time, which will result in inflation eventually reaching its 2 percent objective.

On the sectors of the economy that have recently shown softness, Dudley cited real consumer spending growth, which seems to have moderated from the robust pace it showed during the second half of 2015. He also cited home sales.

Bill Dudley

Bill Dudley

“Both new and existing home sales have flattened since the middle of last year,” Dudley said. “Finally, indicators of real business investment spending point to continued softness.  In contrast, manufacturing production—which had been a particular weak spot of the U.S. economy in 2015—rose in the first two months of this year.”

Slack in the labor market seems to be diminishing as evidenced by payroll gains for the first three months of 2016 near last year’s monthly average of 229,000 to go with an unemployment rate of 5 percent, Dudley said. However, some slack in the labor market remains, as indicated by subdued measures of aggregate wage growth.

“The housing market should remain on a solid trajectory, supported by rising employment and low mortgage rates.”

Bill Dudley, New York Fed President and CEO

“I continue to anticipate that consumption and housing activity will expand at a moderate pace this year,” Dudley said. “Continued job and wage gains, combined with still-low energy prices, should sustain real disposable income growth and support consumer spending. The housing market should remain on a solid trajectory, supported by rising employment and low mortgage rates.”

Mortgage rates reached a low for 2016 on Thursday, when Freddie Mac announced [2] that the average 30-year fixed-rate mortgage interest rate was 3.59 percent for the week ending April 7.

Dudley expects GDP growth of around 2 percent for 2016, which is slightly below the average pace of growth in this expansion—but a bit above his estimate of the economy’s potential growth.

“If this materializes, then we should see some further reduction in the unemployment rate to around 4¾ percent—my estimate of the rate that I view as consistent with stable inflation over the long term,” Dudley said.

Click here [1] to view Dudley’s full speech.