“I have to say that I'm somewhat surprised,” Yellen said of the weakness of the housing market in a hearing in the House last week. “Frankly, it continues to be sluggish. And I can't give you a precise reason why that's occurred,” she admitted.
The day after her testimony, federal agencies reported another piece of bad news: The number of new houses under construction came in well below expectations in June, at 893,000 rather than the expected million-plus that would have represented gradual improvement.
Two more important data points on housing will come out this week. On Tuesday morning, the National Association of Realtors will release its count of sales of existing homes.
The number of existing home sales has shown signs of recovery in the past few months after cratering when the Fed raised mortgage rates last summer. In May, 4.9 million homes were sold, and economists expect that to tick up to 5 million for June.
Then, on Thursday morning, the federal government will report on sales of newly built homes. Sales spiked to more than 500,000 in May, and economists anticipate that the June number will move back toward trend.
What's mysterious about the weakness in housing in 2014 is that some of the obvious factors that would slow down activity are missing. In particular, mortgages rates have been drifting downward during the year.
Fed officials have no idea what's wrong with the housing market, the minutes for the June meeting of the Fed's monetary policy committee released last week showed. The minutes contained their best guesses as to what was wrong, and the list included almost every possibility imaginable:
* Tight credit conditions, particularly for people with low credit scores.
* High down payments.
* Low demand among younger homebuyers, possibly because of burdensome student loan debt.
* Supply constraints, such as shortages of lots, low inventories of desirable homes for sale, an overhang of homes in foreclosure, and rising construction costs.
* Less demand for single-family homes because the of aging population and “evolving lifestyle preferences.”
Yellen and company will be looking for some clarity in this week’s reports.
One other important report this week: On Tuesday, the Bureau of Labor Statistics will report on inflation for June, as measured by the Consumer Price Index. The CPI, the mostly widely cited gauge of inflation, showed prices climbing at a 2.1 percent annual pace in June. That was the first time it had been above 2 percent since 2012. While the Fed's inflation target is 2 percent, CPI inflation above that rate won't dissuade the central bank from its current course of action, as they view the monthly CPI as both volatile and slightly overstated. Nevertheless, continued rising inflation would be a sign that their stimulus efforts are having the intended effect.