[If you feel good about the housing market right now, skip the first half of this post. I don’t want to ruin your day. -ed]

For Current Pessimists

Peter Coy surmizes that Real estate bulls shouldn’t count on the Fed abandoning further hikes. Here’s why the squeeze could well grow worse in his Why Housing Looks Rickety [BW] piece.

  • The stock market seems to be betting that housing is safe from higher mortgage rates.

  • Investors are happy about low core inflation, yet CPI posted an expectedly large gain this month.

  • People may be overly exuberant about just released FOMC minutes which suggests the Fed is in a one and done scenario.

  • Fixed mortgage rates have been largely resistant to inflationary concerns with modest increases so far.

  • Incomes have not kept pace with housing prices in recent years and mortgage rates are rising.

  • Creative financing has been largely played out by rising prices.

For Current Optomists (noticeably smaller)

  • A healthy labor market will offset some of higher mortgage rate’s impact on housing.

  • The economy is weaker than thought and unemployment numbers are actually higher, the Fed may be forced to lower the fed funds rate in 2007 (I speculated about this before) which could prompt a surge in refi and sales activity.

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