Despite aggressive interest rate hikes by the Federal Reserve—the most forceful in decades—the housing market is showing a surprising level of resilience, contrary to what many economic models would predict. While it’s true that home sales have retreated, dropping to levels last seen between the 2010-2020 period, housing starts have remained unexpectedly robust, surpassing any point between 2007 and 2020. This paradox where a tightening fiscal policy coexists with strong construction indicators raises questions about the underlying dynamics at play in the current economy.

The job market, particularly in construction, has defied the expected downturn. Instead of shedding jobs in response to reduced demand, the sector has seen an influx of around 20,000 new positions in the latter half of 2023. Analyst estimates suggest that under normal conditions, the construction industry should have lost over 600,000 jobs, considering the past year’s economic trends.

To understand this anomaly, several factors need to be examined. Firstly, the full impact of the Federal Reserve’s policies may take longer to materialize in the housing market, suggesting a delayed response to fiscal tightening. Additionally, a significant increase in immigration may be injecting vitality into the market, with a higher-than-expected number of newcomers creating a demand for housing, despite a decrease in sales.

The unique post-pandemic economic conditions could also be contributing to the resilience of the housing market. The pandemic has altered many aspects of the economy, and the traditional models may not be as reliable in predicting outcomes in this new economic landscape.

While the immediate impact of the Federal Reserve’s actions appears less dramatic than expected, there are concerns that the current situation might not be sustainable. The disconnect between housing starts and home sales could indicate a deeper imbalance that may correct itself as the Fed continues to adjust its policies. Whether we’re witnessing a new normal in the housing sector or merely a temporary anomaly remains to be seen. The coming months will be crucial in revealing the true trajectory of the housing market in an era of economic recalibration.