The US Housing Recovery and Policy Uncertainty
The rather sluggish recovery in the US housing market reflects a great many factors, notably limited supply in many areas, but also credit tightness and student-loan related financial constraints among young households, among others. This has been offset by extraordinary measures to keep mortgage rates low, including the zero-rate policy and quantitative ease. The pendulum now is swinging back, with the Federal Reserve raising rates in a measured fashion, and sending signals that before long the stock of its MBS holdings will be allowed to fall.
At the same time, the Administration is indicating an interest to roll back some of the measures in the Dodd Frank legislation to allow credit to flow more easily. As the pendulum swings, will the market stay on its modest expansionary track, or will upside or downside risks dominate?