Will higher rates halt the housing recovery?

Housing-related growth may be more sensitive to interest rates than we had previously believed.

Robert Johnson, CFA 30 May, 2016 | 5:00PM

The economic news this week was uniformly positive, as many sectors of the economy appeared to come out of their winter doldrums. Pending sales of existing homes, new home sales, and even laggards durable goods orders and exports joined an already-long list of indicators that turned positive for April. Some of the headlines were stunning, perhaps even too good to be true, with new home sales up an unexpected 16% in a single month.

The year-over-year data in most reports was healthy, but not nearly as electrifying as the monthly data. So, just as we cautioned readers not to panic in February when things looked terrible, we now worry that some might become too optimistic. The potential of higher interest rates and demographics is likely to limit GDP growth to the low end of our normal 2.0%-2.5% range for the full year, with a temporary bounce to closer to 3% for the second quarter. The stronger economic news helped keep equity and commodity markets going strong, while bonds were little changed, despite the better economic news.

Current housing boomlet: Driven by low rates?

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Robert Johnson, CFA

Robert Johnson, CFA  Robert Johnson, CFA, is director of economic analysis for Morningstar.