The state and prospects of the US economy and residential real estate

I will focus on the role of housing for the macro‐economy rather than giving a detailed prediction for the overall performance of the economy or the bond and stock markets. We recently had an interesting conference on that topic at Stern. The consensus view among private sector and government economists is one of gradual improvement in economic performance into 2014 with about 3% real GDP growth. In terms of monetary policy, tapering of the Quantitative Easing program is now expected to not begin until the end of this year or the beginning of 2014. Bond purchases by the Fed are expected to end towards the end of 2014. Short term interest rates are expected to be raised sometime in 2015. The outlook for equities is positive given that the low rate environment continues and the economy is strengthening. Finally, economists agree that the fiscal standoff, to which I will return at the end of my talk, will have done some mild economic damage to the current quarter’s GDP growth. By and large, I agree with this consensus view, though I am slightly more bullish on the aggregate economic performance.