Fed officials see risk from slowdown in US housing

WASHINGTON — United States Federal Reserve officials, while forecasting a rebound in growth, also warned last month about the industry at the heart of the financial crisis in the world’s biggest economy: Housing.

“A number of participants pointed to possible sources of downside risk to growth, including a persistent slowdown in the housing sector”, said the minutes of the April 29 to 30 meeting of the central bank’s policymaking Federal Open Market Committee (FOMC) released on Wednesday.

Fed policymakers noted several reasons for the “continuing weakness” in housing activity, including higher home prices, construction “bottlenecks” due to labour shortages and harsh winter conditions, as well as tight credit, the minutes showed.

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

Mr Steve Blitz, chief economist at ITG Investment Research in New York, said yesterday: “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.”

Fed staff briefing the FOMC also characterised activity in housing as “soft”.

While single-family home starts rose in March, the central bank’s 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”. BLOOMBERG