Wall Street was laser-focused on the Federal Reserve\u2019s monetary policy this past week, but minutes from the central bank\u2019s last meeting revealed concern among some policymakers about the housing market.<\/p>\n
As the sector\u2019s slump drags on, it has triggered more alarm bells<\/a> because activity in housing, such as residential investment and construction, has often served as a leading indicator on the overall economy<\/a>. <\/p>\n Minutes from the Fed\u2019s earlier meetings didn\u2019t include such concerns. But that changed during the July 29-30 gathering.<\/p>\n \u201cParticipants observed that growth of economic activity slowed in the first half of the year, driven in large part by slower consumption growth and a decline in residential investment,\u201d the minutes, which were released on Wednesday, said.<\/p>\n To be sure, housing was just one of several concerns that policymakers raised. Others included the labor market, the effect of tariffs on inflation, real income growth, elevated asset valuations, and low crop prices.<\/p>\n But Fed officials were also specific about their housing market worries, suggesting they were starting to pay more attention to the data.<\/p>\n \u201cA few participants noted a weakening in housing demand, with increased availability of homes for sale and falling house prices,\u201d the minutes said.<\/p>\n And not only did housing show up on the Fed\u2019s radar, policymakers flagged it as a potential risk to jobs, along with artificial intelligence technology.<\/p>\n \u201cIn addition to tariff-induced risks, potential downside risks to employment mentioned by participants included a possible tightening of financial conditions due to a rise in risk premiums, a more substantial deterioration in the housing market, and the risk that the increased use of AI in the workplace may lower employment,\u201d the minutes added.<\/p>\n Housing market data<\/p>\n The fact that the housing market is emerging as a worry at the Fed means that it could also weigh more on rate decisions, which influence mortgage rates.<\/p>\n In his Jackson Hole speech on Friday, Chairman Jerome Powell\u00a0opened the door to a rate cut<\/a>\u00a0at the central bank\u2019s meeting in September after months of maintaining a more hawkish stance, stoking a\u00a0furious rally on Wall Street<\/a> and sending the 10-year Treasury yield down sharply.<\/p>\n But in the meantime, fresh data show that the housing market remains stuck as elevated borrowing costs have kept would-be buyers on the sidelines.<\/p>\n Sales of existing homes rose in July but have largely been flat for most of the year, even as the number of listings has climbed, suggesting demand is weak. That\u2019s suppressed home prices, with a gauge of median prices falling in all but one month this year.\u00a0<\/p>\n \u201cWeekly data suggests home prices may remain subdued in coming months, close to flat on the year or rising only very modestly,\u201d analysts at Citi Research wrote on Thursday. \u201cHome price declines are rare outside of hiking cycles or recessions.\u201d<\/p>\n In addition, construction of new single-family homes remains lethargic, and data for July showed that building permits have declined in six out of seven months this year. In fact, permits\u2014a volatile but leading indicator of future activity\u2014fell to the lowest level since 2019, excluding the pandemic.<\/p>\n That was reflected in the NAHB homebuilder confidence index, which fell in August to reverse a modest uptick earlier. It also showed that the share of homebuilders offering sales incentives hit a post-pandemic high.<\/p>\n \u201cAs housing demand remains weak with high mortgage rates and high home prices, we expect further softening in housing activity this year,\u201d Citi said in a separate note on Tuesday.\u00a0\n<\/p>\n