Over the last few week’s I have been dismayed by the conflicting signals generated from the economic data pertaining to the housing market and the health of the economy.
As you can tell from a number of my previous posts, its been on my mind quite a bit. I am not sure if its that the collection and presentation of data is worse, the results are misleading because they are too macro-orientated or that we simply have started to pay attention and question the results now that the housing market is shifting gears.
In Michael J. Martinez’s article on Sunday Is Housing Market Strong? Ask the 8 Ball [AP/WP] he laments over the same issue and expands on the contradictions seen in various statistics released every month.
But the new home sale drop seems to better the odds [TheStreet.com] that the Fed will take a break from raising rates after the expected increase tomorrow.
Although I am a big fan of The Street.com and Jim Cramer, I really do believe that Bernanke and Co. will move the fed funds rate to at least 5%, so we have 2 more 1/4 point rate hikes against us. Energy prices are still high, although nat gas corrected nicely, there is still too much political uncertainty in oil producing nations, the economy is still showing signs of strength, and quite honestly, I do not think Bernanke is concerned about a housing market crash. I do know that he will NOT stop raising rates simply because of the possible negative affect on housing. I also wouldnt be surprised if Bernanke is continuing with a pre-determined or somewhat pre-determined campaign that Greenspan started and it seems that a fed funds rate of 5% is a good neutral area to stop. However, if he does go higher, the affect on those with high credit debt (so pretty much everyone) and short term lending products (many new first itme homeowners) will be much more painful than I first thought and who knows how that will play out…Expect another 2 more 1/4 hikes and expect deserate home sellers over the course of the next 1-2 years before a bond market predicted recession possibly hits and Bernanke starts a rate easing campaign…