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Fed Chair Voices Concerns on Housing Slowdown

annual-reportWhile the sudden stop in economic growth in this year’s first quarter might have some market-watchers sending up red flags, Federal Reserve Chair Janet Yellen isn’t especially concerned. One warning sign has caught her eye, however: the housing market’s so-far uninspiring performance this year.

In a testimony delivered before Congress’ Joint Economic Committee on Wednesday, Yellen pointed to accelerated economic growth in last year’s second half—when expansion was measured at an average annual rate of 3.25 percent—as a sign that the country remains on a healthy track.

Though growth was put at an abysmal rate of 0.1 percent in Q1 2014 (according to the government’s first estimate), Yellen said she sees the abrupt slowdown “as mostly reflecting transitory factors, including the effects of the unusually cold and snowy winter weather.

“With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter,” she added.

Tempering that optimism is housing, which had a rough first quarter and has yet to heal, even with the start of spring. Faced with recent sluggish sales figures, the Fed chief admitted, “[T]he recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.”

While little of Yellen’s testimony veered from what the central bank has been saying for some time—particularly her forecast of economic activity expanding “at a somewhat faster pace this year” compared to 2013—the comments on housing were something new for commentators to mull over.

Responding to Yellen’s remarks, Capital Economics’ chief U.S. economist, Paul Ashworth, said the firm doesn’t share her pessimism.

“We suspect that some of the current weakness in sales and construction reflects the bad weather,” Ashworth said, continuing a common theme among analysts. “It is notable that the pending home sales index rebounded sharply in March and, while mortgage applications remain weak, the value of actual mortgage lending has started to rebound in recent weeks.”

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