The end of the US housing market crisis?

On April 25th, Bloomberg published an article called "Housing-Market Bottom Raises Hopes that US Can Avoid Recession," highlighting that key housing indicators have rebounded in the early months of 2023 and that mortgage rates have likely peaked with the Fed's tightening campaign almost done.

Historically, housing has been a critical driver of the broader business cycle. Low interest rates boost demand for homes, which drives up prices, building activity, and construction jobs. Conversely, when the Federal Reserve raises rates, the opposite occurs.

Now, with the Fed poised to wrap up its tightening campaign, mortgage rates have likely peaked. Meanwhile, the job market has remained resilient, and all of that has helped key housing indicators rebound in the early months of 2023.

Ellen Zentner, the chief US economist at Morgan Stanley, stated that "It seems pretty clear when you look at the activity data, both home building and home buying, that we're rounding the bottom now."

Currently, things are looking up: according to government data, new-home sales jumped in March to the highest level in a year. Home construction projects have also risen about 6% over the last two months after falling 26% in the preceding nine months.

U.S. Federal Reserve officials remain set to raise interest rates at their May 2-3 meeting, but key data, particularly a survey of bank lending officers, may shape how they weigh the risks facing the U.S. economy and whether they decide to pause further increases.

The quarter-point increase expected at the May meeting would raise the benchmark interest rate to the range between 5% and 5.25%, which Fed policymakers projected in both December and March would likely be the peak for the current round of policy tightening.