Everyone's Flagging One Warning From Janet Yellen's Testimony On The Economy

For the most part, she's been sticking to the Fed's script of noting problems in the labor market and reiterating that rates would be low for a long time. But everyone's flagging what she's said about housing in her prepared remarks.

...One cautionary note, though, is that readings on housing activity--a sector that has been recovering since 2011--have remained disappointing so far this year and will bear watching...

...the recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery...

TD Securities' Millan Mulraine characterized this as "an important departure from the past upbeat tone on the economic outlook."

Lately, various housing market metrics like existing home sales, new home sales, and mortgage applications have all been flagging lately. Last week, we learned that the U.S. homeownership rate was at a 19-year low, and some experts think it'll never come back.

"[T]he Fed is beginning to recognize that the biggest drop in affordability in more than 30 years is a serious drag on activity," said Pantheon Macroeconomics' Ian Shepherdson.

Of course, we can't ignore the fact that some temporary negative forces have been at play.

"We suspect that some of the current weakness in sales and construction reflects the bad weather," said Capital Economics' Paul Ashworth.

Yellen actually blamed the harsh winter weather for GDP in Q1 essentially grinding to a halt.

"With the harsh winter behind us, many recent indicators suggest that a rebound in spending and production is already under way, putting the overall economy on track for solid growth in the current quarter," she said.

So, her comments on the housing are definitely worth flagging since she seems to have doubts that warm weather will put the market back on track.

"It is notable that the pending home sales index rebounded sharply in March and, while mortgage applications remain weak, the value of actual mortgage lending has started to rebound in recent weeks," said Ashworth. "Accordingly, we don't share Yellen's pessimism and expect a rebound in residential investment starting in the current quarter."

For those watching interest rates, it may be too early to conclude that Yellen is about to change course of monetary policy.

"Although this language is likely viewed as dovish, we do not believe that it suggests a later start to the Fed's rate hike cycle nor a slower pace to the speed of that cycle than is currently evident in the FOMC's forecasts provided in March," said UBS's Drew Matus.

For now, we'll all just have to hope that Yellen's cautious tone is just that.