Housing activity weakens in latest Fed Beige Book report

Housing activity weakened across much of the country, emerging as one of the clearest drags on overall economic performance, according to the Federal Reserve’s most recent Beige Book report.

Most Federal Reserve districts reporting on residential real estate cited softer home sales, slower construction and reduced mortgage lending.

Higher borrowing costs and affordability constraints continued to weigh on demand — even as inventories showed modest improvement in some markets.

Several districts noted a pullback in new residential construction, while others reported developers delaying projects amid uncertain demand.

Commercial real estate conditions were mixed — improving slightly in a handful of districts but declining elsewhere, particularly for office properties. Banking contacts said demand for home equity loans rose modestly, even as traditional mortgage activity slowed.

The latest Beige Book data was prepared by the Federal Reserve Bank of Richmond using information collected on or before Jan. 5. Comments from district contacts do not necessarily reflect views of Federal Reserve officials.

Overall economy increases

Economic activity increased at a slight to modest pace in eight of the 12 Federal Reserve districts, marking a notable improvement from recent report cycles dominated by stagnation.

Three districts reported little change, while one — New York — saw a modest decline.

Consumer spending rose slightly overall, supported by the holiday shopping season and strong demand from higher-income households. Spending gains were concentrated in luxury goods, travel, tourism and other experiential purchases.

Low- and moderate-income consumers, however, remained cautious and increasingly price sensitive, limiting discretionary spending.

Nonfinancial services demand was generally steady to slightly stronger. Manufacturing performance remained uneven, with five districts reporting growth and six noting contraction. Energy demand and production were flat to slightly down nationwide.

Outlooks for the months ahead leaned mildly optimistic, with most districts expecting slight to modest growth despite persistent uncertainty.

Labor markets unchanged

Employment levels were largely unchanged, with eight districts reporting flat hiring.

When firms added workers, hiring was mostly limited to filling existing vacancies rather than expanding payrolls. Several districts reported increased reliance on temporary workers as businesses sought flexibility.

Labor shortages persisted in specialized fields such as health care, engineering and skilled trades. Fewer workers were switching jobs, contributing to easing wage pressures.

Wage growth continued at a moderate pace, with many contacts saying increases had returned to more typical, pre-pandemic patterns.

Businesses across multiple districts reported exploring artificial intelligence primarily to boost productivity.

Contacts said artificial intelligence had little immediate impact on employment but could influence workforce decisions in the longer term.

Prices and costs

Prices increased at a moderate pace in most districts, with only two reporting slight growth.

Tariff-related cost pressures were cited across all regions. As pre-tariff inventories diminished, more firms began passing higher costs on to customers, though some retailers and restaurants remained reluctant to raise prices due to consumer sensitivity.

Energy and insurance costs continued to strain margins. While firms expect some moderation in price growth, most anticipate prices will remain elevated as higher input costs work through the system.

District highlights

Boston saw slight economic growth despite a moderate decline in home sales, while New York activity declined modestly amid layoffs at large employers.

Philadelphia rebounded to slight growth, but wage gains lagged price increases. Cleveland and Richmond reported slight to modest growth, though housing softened in both.

Atlanta posted slight growth with improved home sales, while Chicago’s economy was largely unchanged, with modest gains in real estate demand.

St. Louis saw modest improvement tied to late holiday sales. Minneapolis activity was flat — with declining employment and contracting manufacturing.

Kansas City reported slight growth supported by services and manufacturing orders, offset by weaker energy activity.

Dallas activity held steady, with banking a bright spot. San Francisco expanded modestly, with stable real estate and stronger lending.