As the sector’s slump drags on, it has triggered more alarm bells because activity in housing, such as residential investment and construction, has often served as a leading indicator on the overall economy.

Minutes from the Fed’s earlier meetings didn’t include such concerns. But that changed during the July 29–30 gathering.

“Participants 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,” the minutes, which were released on Wednesday, said.

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.

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

“A few participants noted a weakening in housing demand, with increased availability of homes for sale and falling house prices,” the minutes said.

And not only did housing show up on the Fed’s radar, policymakers flagged it as a potential risk to jobs, along with artificial intelligence technology.

“In 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,” the minutes added.

Housing market data

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.

In his Jackson Hole speech on Friday, Chairman Jerome Powell opened the door to a rate cut at the central bank’s meeting in September after months of maintaining a more hawkish stance, stoking a furious rally on Wall Street and sending the 10-year Treasury yield down sharply.

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.

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 has suppressed home prices, with a gauge of median prices falling in all but one month this year. 

“Weekly data suggests home prices may remain subdued in coming months, close to flat on the year or rising only very modestly,” analysts at Citi Research wrote on Thursday. “Home price declines are rare outside of hiking cycles or recessions.”

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—a volatile but leading indicator of future activity—fell to the lowest level since 2019, excluding the pandemic.

That was reflected in the National Association of Home Builders 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.

“As housing demand remains weak with high mortgage rates and high home prices, we expect further softening in housing activity this year,” Citi said in a separate note on Tuesday.