The Fed is starting to worry about the housing market now

As the sector crisis takes place, it has triggered more alarm because activity in housing, such as residential investment and construction, has often served as a leading indicator on the overall economy.

A few minutes from previous Fed meetings, did not include such concerns. But that changed during the rally from July 29 to 30.

“Participants observed that the growth in economic activity had slowed down in the first half, which largely trained by slower consumption growth and a drop in residential investment,” the minutes, which was published on Wednesday, said on Wednesday.

Certainly, housing was only one of the many concerns that political decision -makers have raised. Others included the labor market, the effect of prices on inflation, real income growth, high asset assessments and the low prices of crops.

But Fed officials were also specific to their concerns in the housing market, suggesting that they were starting to pay more attention to the data.

“Some participants noted a weakening of the housing request, with increased availability of houses for sale and a drop in housing prices,” said the minutes.

And not only has the accommodation appeared on the Fed radar, political decision -makers pointed out as a potential risk for jobs, as well as artificial intelligence technology.

“In addition to the risks induced by prices, potential risks down to the employment mentioned by participants included a possible tightening of financial conditions due to an increase in risk premiums, a more substantial deterioration of the housing market and the risk that the increased use of AI at the workplace can reduce employment,” added the minutes.

Housing market data

The fact that the housing market emerges as a concern at the Fed means that it could also weigh more on rate decisions, which influence mortgage rates.

Friday, in his speech by Jackson Hole, President Jerome Powell opened the door to a drop in rate at the central bank meeting in September after months of maintaining a more bellicist position, endearing a furious rally to Wall Street and sending the yield of the Treasury to 10 years.

But in the meantime, new data show that the housing market remains stuck, as high borrowing costs have maintained potential buyers on the sidelines.

Sales of existing houses increased in July but were largely stable for most of the year, even if the number of announcements has climbed, which suggests that demand is low. This has removed the prices of houses, with a median prices gauge every month except one.

“Weekly data suggest that the prices of houses can remain moderate in the coming months, near the apartment of the year or the increase in very modestly,” Citi Research analysts wrote on Thursday. “The decreases in the price of houses are rare outside of hiking cycles or recessions.”

In addition, the construction of new unifamilial houses remains lethargic and data for July showed that construction permits have decreased in six over seven months this year. In fact, permits – a volatile indicator but a leader in future activity – has been looking at the lowest level since 2019, excluding the pandemic.

This was reflected in the Confidence index of the manufacturer Homebuilder of Nahb, which dropped in August to reverse a modest increase earlier. He also showed that the share of house manufacturers offering incentives for sale has reached a post-pandemic summit.

“Since the demand for housing remains low with high mortgage rates and high prices of houses, we expect an additional softening in the housing activity this year,” Citi said in a separate note on Tuesday.