US housing market seen withstanding Fed's interest rate hikes

[NEW YORK] The US housing market is likely to withstand the Federal Reserve's expected path of interest rate hikes, with stronger house price gains likely this year, a Reuters poll of top economists showed on Tuesday.

Twenty-eight of 32 analysts surveyed said they were confident the US housing market would be able to stand up to the Fed's expected rate hikes, with three "very confident," and only one not confident.

"Even when the Fed raises interest rates they will raise them gradually, which should still be relatively accommodative given how low rates still are given historical averages," said David Nice, an economist at Mesirow Financial in Chicago.

Home prices were seen rising 5.0 per cent this year and 4.5 per cent in 2016, according to the median forecasts of analysts surveyed.

That is up from February's poll, when the S&P/Case Shiller composite index of prices in 20 metropolitan areas was forecast to rise 4.0 per cent this year and next.

Analysts surveyed, however, were divided over whether or not the economy is sensitive to housing activity, and if the 20 per cent surge in U.S. housing starts in April was a solid bounce back or a seasonal blip.

"It is the continuation of a very strong fourth quarter and January but probably has some catch-up from the weather-related slowdown in February and March," said Robert Denk, an economist with the National Association of Home Builders, which said the surge is a combination of both.

US housing starts jumped to their highest level in nearly 7-1/2 years in April and permits soared.

Sales of previously owned homes were forecast at an average annualized rate of 5.10 million units in the second quarter, continuing that upward trajectory to 5.20 million units in the third, according to the Reuters poll.

That compares to a 5.17 million-unit rate for the second quarter and 5.20 million units for the third quarter, as previously forecast in the February survey.

Asked to judge whether the US housing market was fairly valued on a scale of one to 10, with 10 being extremely expensive and one being extremely cheap, the median answer was six.

The poll forecast the 30-year mortgage rate averaging 3.90 per cent this year and rising to an average of 4.50 per cent in 2016. In February, those surveyed forecast an average of 4.00 per cent and 4.58 per cent, respectively.

REUTERS