While this week's scheduled economic reports focus on the housing market, the economic version of the proverbial "elephant in the room" is the Federal Reserve's statement on monetary policy, due Wednesday. The statement will be followed by a news conference held by Fed Chairman Ben Bernanke, his second of the year so far.
Among the highlights this week:
- Commerce Department reports on May housing starts, Tuesday at 8:30 a.m. (All times Eastern.)
- Federal Open Market Committee statement, Wednesday at 2 p.m.
- National Association of Realtors reports on May existing home sales, Thursday at 10 a.m.
Mr. Chairman, please explain
Global stock markets have been volatile in recent weeks amid concern that the Federal Reserve might want to begin scaling back on its monthly buying of mortgage-backed securities and Treasury bonds, in a program aimed at bolstering the economy. This week's news conference will give reporters an opportunity to quiz Bernanke further on the issue. Will the Fed change the outlook on its asset purchases? That's unlikely, according to a couple of the nation's leading economists.
"The Fed will stay the course. No reason to fine-tune," says Diane Swonk, chief economist with Mesirow Financial. She says that for Fed officials, "The issue is reassuring markets that they are still fully engaged." And, longer term, Swonk says "the Fed is likely to taper slowly, so as not to disrupt markets."
Lynn Reaser, chief economist at Point Loma Nazarene University, agrees that the Fed will want to stick with the status quo. "While some of the hawks would like to see a move towards tapering asset purchases (known as "quantitative easing"), the chairman and others are waiting for more evidence of stronger and steadier economic growth."
Firmer foundation for housing
Although it might seem like ancient history, it's worth remembering that the financial crisis that began about five years ago was rooted in housing. So, the continued recovery in the housing market is a welcome development on a number of fronts. This week's reports are expected to help underscore that the housing rebound is continuing.
The average for 30-year fixed-rate mortgages has risen in recent weeks and is now more than 4 percent. David Crowe, chief economist for the National Association of Home Builders, doesn't think higher rates will kill the housing market recovery.
"It will certainly affect some people, some affordability barriers will kick in," he says. "But I have been saying all along, it is not the price of credit that is the limiting factor right now, it is the availability." He adds: "It is still difficult for a standard person with normal credit to get a mortgage."
A little perspective, please?
Does the improvement in housing have room to run? "Absolutely, absolutely," says economist Ken Mayland with ClearView Economics. He says, "There is no question, this has legs." Mayland looks for housing to be "a good factor for 2013, and it will probably spill over for the next couple of years."
As for the rise in interest rates, don't forget that rates had been at record-low levels. Housing has prospered during times of much higher rates, although that's not something most folks would like to see.
"I remember in the very early '80s when mortgage rates hit 15 percent or 16 percent for a brief period of time, and people in the industry said, 'Oh, if only mortgage rates would drop down to 12 percent, it would cause a boom in housing.'" Mayland says. "Mortgage rates did drop to 12 percent, and it did cause a boom in housing. And now we are talking about 4 percent mortgage rates.
"No, this is historically very, very cheap, and a very, very good deal for homebuyers," he notes.
This week in business history: The LP
Many of us now rely on digital downloads and streaming when we want to listen to music. But vinyl records have been enjoying something of a comeback in recent years. From the annals of analog, it was June 21, 1948, when Columbia Records introduced the long-playing, or "LP," record. The first was a classical recording, followed by "The Voice of Frank Sinatra," to appeal to popular tastes. Columbia says by the end of that year, it sold 1.2 million LPs.
Vinyl would face knock-out punches decades later. The compact disc was released in 1982, while Apple unveiled iTunes in 2001.
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