Terrible housing data will spark talks of QE3: Borthwick

Wednesday’s housing data was terrible.

February housing starts dropped to an annual rate of 479,000 units and building permits fell to an annual rate of 517,000 units. Both figures measure the pace of US housing construction.

According to Reuters, February’s housing starts – down 22.5 percent from the previous month – showed the largest drop since 1984 and building permits came in at the lowest level on record.

Despite the overall US economic recovery, Wednesday’s data continue to confirm the persistent weakness in the real estate market.

The large shadow inventory, subdued level of consumer confidence, and stringent lending standards are key factors responsible for the weakness in the housing market – which some experts to expect to double dip later this year.

The persistent real estate weakness “tell us the Fed will continue the QE2 [second round of quantitative easing] and the market will begin to discuss QE3,” said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut.

“The Fed has consistently pointed to housing and employment as being important indicators for US growth,” he explained.

So the slow improvement in the jobs market and bad news coming out of the housing market may prompt the Federal Reserve to continue to be accommodative.

In its latest policy statement, the Federal Reserve said “the housing sector continues to be depressed” while the “labor market appear[s] to be improving gradually.”

Email Hao Li at hao.li@ibtimes.com

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