[It's not surprising to read about how ill-prepared the Federal Reserve was back in late-2006 for the aftermath of the bursting of the housing and credit bubbles that, by that time, wasn't much they could do about even if they wanted to. In this item from October 12th, 2006, the Fed meeting minutes noted that "considerable uncertainty was expressed regarding the ultimate extent of the downturn in the housing sector" as central bank policy makers were the proverbial lambs being led to slaughter (along with millions of homeowners).]
Yesterday’s release of the Minutes of the Federal Open Market Committee from last month’s Fed policy meeting showed continuing concern over rising prices, members indicating a “substantial risk” that inflation may not decline with a slowing economy.
Members were also concerned about housing, though apparently they’re falling a little behind in their reading.
In their discussion of major sectors of the economy, meeting participants focused especially on developments in the housing market. Although the situation varied somewhat across the nation, housing activity was continuing to contract in most regions. Home sales had slowed considerably, and anecdotal reports suggested that more buyers were canceling contracts for purchases. Participants noted that inventories of unsold homes had climbed sharply in many areas and that builders were taking a number of measures to reduce inventories. Both permits for new construction and housing starts had declined significantly. Available measures of home prices suggested that appreciation had slowed considerably but prices in most areas were not falling, although some sellers were reported to be providing various inducements to potential purchasers that reduced effective prices.
Apparently they haven’t seen last month’s report from the National Association of Realtors where both new and existing home prices have fallen from year ago levels – it was in many of the papers. It’s plain to see in the chart from Northern Trust below.