A weak housing market is likely to affect the U.S. economy’s growth in 2014, the Federal Reserve has warned.
“Readings on housing activity – a sector that has been recovering since 2011 – have remained disappointing so far this year and will bear watching,” said Federal Reserve chairwoman Janet Yellen in testimony to Congress recently.
“The recent flattening out in housing activity could prove more protracted than currently expected, rather than resuming its earlier pace of recovery.”
The warning from the U.S.’s central banker lends force to data recently released by the Commerce Department, which points to underlying weakness in the housing market.
Housing starts increased less than expected, and building permits fell in March.
The slow recovery in housing market has disappointed economists. They were expecting a strong recovery, after the harsh winter was blamed for February’s slowdown.
Groundbreaking for single-family homes rose 6%, but starts for the multi-family segment fell 3.1% in March, the lowest level since October 2013. Permits to build homes fell 2.4% in March to 990,000 units. Permits for single-family homes rose 0.5%, but fell 6.4% for the multi-family sector.
To help the housing sector recover, the Federal Reserve has kept short-term interest rate near zero since 2008. Low interest rates have made it easier for people to take on bigger mortgages. However, increase of one percentage point in interest rates over the past one year has had an impact.
A lack of inventory, rising house prices, shortages of building lots, skilled labour shortages and rising prices for materials have also negatively affected the housing market.