Housing Not as Important as Fed Thinks: Shepherdson

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May 8 (Bloomberg) -- Ian Shepherdson, chief economist at Pantheon Macroeconomics, discusses Janet Yellen’s worries about the U.S. housing market and what he thinks the Fed should focus on in the economic recovery on Bloomberg Television’s “Bloomberg Surveillance.”


In contrast to a recent fmoc statement submission this in passing, it was interesting she could pointed out as a concern.

How important is housing to the overall momentum in the economy?

It ruggedly not quite as important as the fed seems to think.

I sometimes say the fed is almost as obsessed with housing as the labor market.

I'm not convinced it is absolutely essential that housing keeps charging upwards in order for the rest of the economy to grow.

It's a relatively small share of gdp now in terms of housing construction and even when you add in the retail stuff related to housing.

It is important to sentiment.

Homeowners are upset by house prices in the rebound in housing values has drastically improve the personal sector balance sheet.

The fed is clearly no very concerned about it in a way that two or three months ago they were not.

They were ready to dismiss it as something temporary and clearly the worries are more deeper.

If the 10 year yield moves up and we see mortgage rates headed higher, could housing rollover?

Absolutely, if you look at the past year, the affordability index is down very sharply.

It's had its biggest drop in 30 years.

Mortgage rates, if they rise further as the economy picks up, housing will be under further pressure.

It is a paradox that the stronger the rest of the economy gets and the more worried the market gets about the fed raising rates, the higher 10 year yields will go and mortgage rates and potentially the housing market will get weaker.

I spoke at length last night to nouriel roubini.

We spent a good amount of the time talking about the confidence that people like you have that janet yellen can get this done.

What is your confidence that janet yellen can bring us back to normal rates or even to a more restrictive stance two and three and four years out?

The problem here is that there is an awful lot of ways this can go wrong or tighten too slowly or tighten to quickly.

They could start early or late or mess up the balance sheet.

There is a relatively small number of ways in which it can go right.

It is uncertain at to which scenario they will follow.

What will drive them will be the state of the labor market.

Hopefully, that will put them on the right track.

There is this idea of extending time.

This is a three or four year process to get back to normal.


shepardson's counterpart at goldman sachs says the market has it wrong about rates will stay low into 2015. if that is the case, what do people do with their money who are looking for yield?

We have seen investors crowd into high yield even in 2014 after a couple of amazing years of returns.

They are very well invested in parts of the market that provide yield.

There is probably not a tremendous amount more of spread tightening in that market.

You will just be clipping the coupon for the next couple of years.

We are all seeing this in clippers loans imploding rates, huge amount of interest and i don't know -- i have to rip up the script.

No one knows watching what clipping the coupon means.

The first job of bill gross at pimco was to sit in the mailroom and literally -- there was a thing off the side and you clip the coupons.

How quaint.

Don't admit that you know about it.

Thank you.

What is your view on rates?

Do you think rates need to necessarily stay low into 2016 as goldman sachs suggested?

No, i think they will move in 2015 maybe as early as the spring.

I think it will be a combination of continued rapid decline in unemployment and a bit of a cup and wages and some of the key components in the core cpi.

Housing unfortunately will be a necessary casualty.

My guess is that that's the way the fed's thinking evolves great if we see the economy strengthening brother that housing is weakening, i think they will have to live with that and stand up and say it's a price we have to pay in order to get the rest of the economy moving.

I think this will make it an unusual late stage recovery.

The events that led us to this point were unusual.

We are unwinding those things and housing is going to lag behind.

Thank you so much for your thoughts.

We thank martin for watching in hong kong.

It's a surveillance correction.

I said twitt-er but it's twitt-eh.

Thank you so much for watching

This text has been automatically generated. It may not be 100% accurate.


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