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Fed Officials Saw Risk From ‘Persistent Slowdown’ in Housing

Federal Reserve officials, while forecasting a rebound in growth during their April meeting, raised a warning flag over the industry at the heart of the financial crisis: housing.

“A number of participants pointed to possible sources of downside risk to growth, including a persistent slowdown in the housing sector,” according to minutes of the April 29-30 meeting of the Federal Open Market Committee released today. The Fed also cited risks from China’s slowing economic growth and tension between Russia and Ukraine.

Policy makers considered various reasons for the “continuing weakness” in housing, including higher prices, short supply of available lots, and construction “bottlenecks” due to labor shortages and cold winter, the minutes show.

Fed Chair Janet Yellen cited the housing slowdown as a risk in her May 7 testimony to the Joint Economic Committee of Congress, saying it’s part of the reason “a high degree of monetary accommodation” remains necessary.

“The housing situation is a marked reminder to the Fed that all is not yet right with the economy or the availability of mortgage credit,” Steve Blitz, chief economist at ITG Investment Research Inc. in New York, wrote today in a report to clients.

The minutes show that Fed officials had “varied” views on the outlook for multifamily housing, one of the brighter spots in most recent data.

The large increase in apartments and condos going on the market is “potentially putting downward pressure on prices and rents,” the minutes said, citing Fed officials. That may be offset as demand for multifamily units rises with the aging of the population.

‘Tight’ Standards

A couple of officials said mortgage credit availability “remained constrained and lending standards were tight” by historical standards, according to the minutes. Still, some Fed districts reported real estate and housing business activity had “strengthened recently” amid the jump in consumer spending during March, when it surged the most in almost five years amid warmer weather.

Fed staff briefing the FOMC characterized activity in housing as “soft.” While single-family home starts rose in March, staff warned that permits for single-family homes “remained below their fourth-quarter level and had not shown a sustained improvement since last spring, when mortgage rates began to rise.”

Permits are usually less sensitive to weather fluctuations and are viewed as “a better indicator of the underlying pace of construction,” according to the summary of the staff presentation included in the minutes.

To contact the reporter on this story: Jeff Kearns in Washington at

To contact the editors responsible for this story: Chris Wellisz at James L Tyson, Brendan Murray

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