Vital Signs: Can Nerves Be Calmed about Housing?

On tap: A two-day monetary policy meeting by the Federal Reserve, February housing starts and existing home sales, and more

by James Mehring

The financial markets are twitching over every new piece of information about the housing market and the unfolding demise of the subprime mortgage market. So even though the upcoming week isn't chocked full of economic reports, the markets will be paying close attention to the data as housing dominates the calendar.

More evidence that home sales are stabilizing would be welcome news. A solid number would help calm some nerves in the face of daily reports surrounding bad mortgages and the possible impact rising delinquencies could have on demand via tighter lending standards. A weak number would likely get partially discounted for weather related reasons, but it will only make investors more nervous about the upcoming spring results.

Home builders seem to think conditions are improving. Look for the March Housing Market Index figures to see if builder sentiment improves some more. Even if demand holds up and builders express more hope, there is still the matter of huge inventory of unsold new and existing homes on the market. While builders have pulled back on new construction, there are still a lot of new homes hitting the market each month. That points to lower prices, more kitchen upgrades, or new cars thrown in by builders to clear inventories (see BW Online, 2/11/07, "Out of the Basement for Housing").

The Federal Reserve meets to set monetary policy on Mar. 20-21, but don't expect a move in interest rates. Instead, focus on the post-meeting press release. After the January meeting, the central bank said "recent indicators have suggested somewhat firmer economic growth and some tentative signs of stabilization have appeared in the housing market." Since then, the economic data have turned softer, which could lead to a more reserved view of conditions in the Mar. 21 press release. Fed watchers will also be looking to see if the Fed dials down its hawkish stance on potential inflation pressures in light of recent data.

Here's this week's economic calendar, from Action Economics.