Housing vs. Consumer Spending

Another great post from the Big Picture, continuing the discussion of the Real Estate market and the broader economy:

“The lags between policy actions and their effects imply that we must be forward-looking, basing our policy choices on the longer-term outlook for both inflation and economic growth. In formulating that outlook, we must take account of the possible future effects of previous policy actions – that is, of policy effects still ‘in the pipeline’.”

-Ben Bernanke’s July 19 semi-annual monetary policy report to Congress

...Mortgage apps, housing and consumer spending. As mortgage rates increase and housing slows, we can expect the impact on consumers to be significant:

The uptake of both the quoted paragraph and the chart above is fairly obvious: Housing is already rolling over, and will likely take consumer spending with it. Consider also there is at least 6 months to a year worth of rate hikes whose impact have not yet been fully felt in the economy.

Hence, why Pimco thinks the Fed is done, why the Center for Economic and Policy Research believes the Housing slow down will have wider repercussions, and why NYU's Nouriel Roubini believes a recession is most likely unavoidable.