Housing is among the most interest-rate sensitive sectors of the economy. It’s also one of the most cyclical and crucial inputs for the business cycle. On that basis, one could reasonably expect that the sharp runup in interest rates over the past two years would have crushed the trend in housing prices.
The revival in a firmer housing price trend is striking for several reasons. First, it arrives before the Fed has started cutting interest rates.for rate cuts have been pushed further into the future and so any relief for housing in the form of lower borrowing costs is on track to be delayed. The reflation in housing prices is also conspicuous because it’s again rising faster than year-over-year economic growth, based on nominal. US output rose 5.4% in the first quarter vs. the year-ago level – below the rate of growth for housing prices.
The challenge for the central bank is to set policy at a time when housing prices remain resilient while economic growth is slowing. One reason, perhaps the main reason, that the disinflation momentum has stalled is due to a revival in housing inflation.