Can housing keep chugging despite headwinds?

The housing market has held up remarkably well, but rising mortgage rates and a limited inventory of existing homes are likely to test its resiliency over the coming months. Reports this week on new and existing home sales will provide a snapshot of the market’s performance in February. The latest reading on business investment, which has been gradually rebounding from a slump, rounds out a light menu of economic news.

Existing home sales increased a healthy 3.3% in January despite just a 3.6-month supply of units, lowest since January 2005. Still, the thin stockpile is taking some toll on sales and probably more than offset unusually warm weather in February, says Nomura economist Lewis Alexander. Mortgage rates actually dipped last month but, at about 4.17%, were still up from 3.47% in October. Alexander notes that mortgage applications declined in February while pending home sales, an indicator of future transactions, were down the previous month. All told, economists estimate the National Association of Realtors will announce Wednesday that existing home sales fell 1.8% last month to a seasonally adjusted annual rate of 5.6 million.

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New home sales are also due for a moderation after a strong 3.7% increase in January. Besides the drop in mortgage applications, a measure of single-family home sales in the National Association of Homebuilders’ sentiment index edged down recently, Alexander says. And, he notes, the industry is grappling with a shortage of labor and construction materials. Economists expect the Commerce Department on Thursday to report a measured 0.9% increase in new home sales for February.

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Business investment has started to bounce back from an extended downturn as a result of the recovering oil industry and improving global economy. Orders for non-defense capital goods excluding aircraft – a proxy for business capital spending – fell 0.4% in January, but that came after three straight increases. Economists expect Commerce to report Friday that category jumped another 0.6% in February. And overall orders for durable goods, which includes volatile categories such as aircraft and orders, is expected to post a 1.1% increase following a 2% advance the previous month.