In a note today, Merrill Lynch economist Michelle Meyer notes a few upside and downside risks for housing. A few excerpts:



The housing market is being hit by several cross currents. On the upside, the warmer than-normal weather in the winter likely boosted housing activity over the past few months. The risk, however, is that this could be pulling activity forward from the spring. In addition, the general improvement in the economy and gain in consumer confidence could be underpinning housing activity. The NAHB homebuilder confidence index has climbed higher, reaching a new cyclical high of 71 in March. Clearly builders are optimistic. However, on the downside, interest rates have increased which weighs on affordability.



There are also a variety of potential policy changes which can impact the outlook for the housing market. High on the list is financial market deregulation and its impact on the flow of credit. In addition, there seems to be renewed focus on reforming the mortgage finance system and bringing Fannie Mae and Freddie Mac out of conservatorship. In addition, immigration reform could have significant impacts on the housing market over the medium term.

emphasis added

CR note: If, later this year, the Fed starts to reduce their balance sheet, that might push up longer rates (and pushing up mortgage rates a little more). Another downside risk for housing is reduced foreign buying due to the strong dollar, U.S. political concerns, and capital controls in China.