Fed on US housing: “gradual” cooling now “substantial” cooling

The Fed’s FOMC policy statement released last night was notable for a significant downgrading of it’s assessment of the US housing market. In a world where economists look for even the smallest changes of emphasis in the wording of the FOMC statement from month to month, the move from a “gradual” cooling in housing to a “substantial” one was enough to see short dated US Treasury bonds rally by 5 bps. The Fed’s inflation worries persist however for the time being (“the high level of resource utilisation has the potential to sustain inflation pressures”) – but my guess is that it’s the outlook for growth on the downside that’s worrying them more than the outlook for higher prices at the moment.

Talking of housing, in this week’s copy of London’s Time Out listings magazine they have a section on London lists and facts, which includes house prices in the capital over the past couple of decades. I’d known that house prices had fallen in the years after the ’80s boom – but the length of the post-boom downturn surprised me. Here are the price changes in the years in question:

1986 +25%
1987 +23%
1988 +23%
1989 -9%
1990 -3%
1991 -8%
1992 -13%
1993 -0.2%
1994 +2%
1995 -1%
1996 +2%

So post 1988, London house prices fell for 5 years in a row, and even then were effectively flat for another 3 years.