Fed pause supports housing market

The rise in new home sales in the US in December was another indication that the housing market could be stabilising. James Hamilton at Econbrowser explains why this could be so.

... On balance, previous unanticipated changes in monetary policy were a factor that would have continued to depress home sales through October 12, 2006, at which point the Fed's autumn decision to stop raising rates should have begun to be a net positive for new home sales.

In other words, the Fed did it. But it's not all clear for the housing market.

... [T]he autumn monetary policy stimulus will have evaporated by February 2, after which the apparent decision of the Fed to hold the rate steady at 5.25% through the first half of 2007 will start to make a net negative contribution.

Indeed, the Bonddad Blog points out that 10-year Treasury yields are back at 5-month highs and says "don't be surprised if housing numbers fail to impress in the next few months".