The US Federal Reserve will cut interest rates tomorrow after getting a couple of reminders of the damage the housing slump is doing to the broader economy, even though the US isn’t showing any signs of coming to a halt.

Yesterday it had the news that US consumer confidence had fallen to a three-year low. The US Conference Board said its consumer sentiment index fell to 95.6 (from from 99.5 in September), its lowest level since October 2005. That’s a big fall and has US retailers worried as they approach Christmas.

Tonight the Fed will get third quarter GDP figures that will show the US economy still growing at an annual rate around 3%. That’s not slow-down territory.

But things are wobbling. Take US Steel, the biggest steel group in the country. It said overnight that falling steel sales to the car and construction industries (especially housing) had contributed to a sharp fall in third quarter earnings, on top of problems in its European businesses.

US housing companies have lost billions of dollars in write downs and cancelled sales; US investment banks and lenders continue to lose money and project lower sales next year in the housing area, and most worrying, US house prices are showing no sign of slowing their fall.

Figures released overnight show that US house prices fell nationwide in August for the eighth month in a row. The respected Standard &Poor’s/Case-Shiller index, which looks at house prices in 10 US cities, fell 5% in August from a year ago. That was the biggest drop since June 1991. And Yale economist Robert Shiller, who helped create the index, again warned that things could get worse.

According to the index, US house prices have fallen further every month since the beginning of the year and August was the 21st month of slowing returns. A broader index of 20 cities fell 4.4% percent over the last year, with 15 of 20 cities reporting lower prices.

Economists say house prices and consumer spending are closely associated. Now consumer sentiment has dropped sharply, there is no way the Fed won’t cut rates.

A drop of 0.25% is tipped but some economists say there could be another fall of 0.50%, like in September, which surprised the markets, or the Fed could follow up with another cut before the end of the year.

This news comes days after figures were released showing a fourth consecutive quarterly fall in the level of home ownership in the US. The US Census Bureau said that the proportion of households that own their residences fell to 68.1% in the September quarter from 68.3% in the June quarter. The Bureau says the ownership rate has been falling from a peak of 69.3% in 2004.

The Census Bureau also said that a record 17.9 million US homes were empty in the third quarter as lenders took possession of a growing number of properties in foreclosure. That’s up nearly 8% over the year to the end of September. An estimated 2.07 million empty homes were for sale, compared with 1.94 million a year earlier.