Federal Reserve Chair Jerome Powell may have a problem on his hands. Buoyed by three interest-rate cuts, not only did the U.S. housing market stand as a pillar of economic support in 2019, it largely offset the protracted slowdown in business investment. Now, though, cracks have begun to appear in housing.

Focusing solely on forward-looking indicators of residential real estate, the direct input to gross domestic product, permits to build single-family homes dipped in December following seven straight months of gains. As for what’s to come on the sales side, pending homes sales fell by 4.9%, the steepest decline in a decade.

Neither of these data points place housing at risk. The 5.8% gain in residential real estate that supported fourth-quarter gross domestic product topped the third quarter read of 4.6% of GDP that followed a contraction in seven of the prior eight quarters. Even as consumption has faded, this strength should hold. December was one of the warmest for that month on record, and construction data released for that month indicates residential’s contribution to GDP was even higher than initially reported, which will lead to an upward GDP revision. December single-family housing starts, at 1.61 million on a seasonally adjusted annualized rate, were the most in 13 years.

Even with this strength, it's hard to ignore the dip in housing permits and weakness in pending home sales, which were not aberrant in any way, as the softness was not isolated to any pocket of the country. Pending home sales fell 4.0% in the Northeast and 3.6% in the Midwest. And in the critical building hubs of the South and West, pending sales sunk 5.5% and 5.4%.

While many factors are no doubt at work, affordability is key. The downside to the Fed’s tightening campaign throughout 2017 and 2018 was also its silver lining. In March 2018, just as Powell was getting settled two months into office, gains in home prices as measured by the S&P CoreLogic Case-Shiller index topped out at 6.5% over the prior 12-month period.

In the 17 months that followed, through last August, those gains decelerated to a 3.1% rate. This prompted some to ask whether millennials, turning the age of 30 at a rate of five million per day, would finally be able to afford the dream of home ownership in mass numbers. That easier entrée was arrested, though, in September as home-price gains accelerated, ending November at 3.5% rate, a six-month high.

The market for existing-home sales has been even less forgiving on the price front. Median home prices were up 7.8% in December from a year earlier, helping to explain why first-time homebuyers comprised an anemic 31% of purchasers, compared with more than half at the peak of the last housing cycle. This led Lawrence Yun, the chief economist at the National Association of Realtors, to voice concern that:

“Price appreciation has rapidly accelerated, and areas that are relatively unaffordable or declining in affordability are starting to experience slower job growth. The hope is for price appreciation to slow in line with wage growth, which is about 3%.”

Slower home-price appreciation can be had in one of two ways: either via rising mortgage rates or a slowing economy. The downside is that neither is beneficial to the broader housing market. This defines the dilemma that’s emerged for the largest generation of potential homebuyers since the baby boomers came of age. Artificially repressed rates have perverted what was once a market driven by supply and demand.

On the heels of December’s existing home sales report, Bleakley Advisory Group chief investment officer Peter Boockvar noted that investors made up 17% of purchases, up from November’s 16% share and 13% a year ago. “Investors continue to lift the pace of their buying as they search for yield,” Boockvar said. “Thank you Fed for pricing out natural buyers and especially young, first-time buyers.”

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