The United States housing market is emerging as a critical source of economic weakness that policymakers appear to be overlooking, according to economist David Rosenberg.

Rosenberg made the observation based on July data showing that existing home sales were not far from the lows recorded during the 2008 financial crisis.

In an X post on August 22, the economist noted that despite an environment where the number of homes for sale jumped nearly 16% compared to last year, overall sales remained flat on an annual basis. This divergence between supply and demand is putting renewed pressure on prices.

Rosenberg warned that with U.S. housing valued at about $48 trillion, more than twice its pre-financial crisis level, a downturn poses serious risks, as falling prices can trigger a negative wealth effect that erodes consumer confidence and spending.

Fed’s focus on tariff impact 

The decline in home values comes as the Federal Reserve focuses much of its attention on tariff-related price pressures in key inflation measures such as the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) deflator.

“As for the Fed, while it remains consumed with tariff-related concerns on the CPI and PCE deflator, it is missing a very important source of downward pressure on aggregate pricing that comes from a down-cycle in residential real estate valuations,” Rosenberg said. 

According to Rosenberg, this focus risks overlooking a more influential factor that could shape the inflation and growth outlook: deflationary forces from a weakening housing market.

Historically, housing downturns have weighed heavily on the economy, as falling prices shrink household wealth, curb spending, and dampen demand, a dynamic that fueled the 2008 recession.

Rosenberg cautioned that stalled sales, rising inventories, and falling prices point to renewed downward pressure on growth. He argued that while tariffs may influence inflation in the short term, housing valuations will be far more decisive for the U.S. economy in the months ahead.

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