“Housing is the business cycle,” goes economist Ed Leamer’s memorable phrase. A slight exaggeration, but construction and real estate are usually among the first sectors to fall on hard times when a recession looms, and they lead the way up when better times arrive. That leading role is mostly due to real estate’s high sensitivity to changes in interest rates. Interest rate moves are the way that the Federal Reserve adjusts interest rates to rein in an economy that is speeding toward inflation or perks up one that is creating jobs too slowly.
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