flexiblefullpage - default
Currently Reading

The Housing Market Is Threatening to Push the U.S. Economy Into a Recession

Advertisement
billboard - default
Financing

The Housing Market Is Threatening to Push the U.S. Economy Into a Recession

Some experts and analysts are saying, “the Fed will push until something breaks.” Hopefully, it will not be the housing market


October 25, 2022
A newspaper headline reads, "Economic Crisis."
Photo: Stock.adobe.com

For months now, the Federal Reserve has been working to fight inflation however it can. In the last week, Fortune reported that mortgage purchase applications are down 38% from last year, the lowest reading since 2014. As the Federal Reserve raises interest rates to fight inflation, homebuilders are cutting back, real estate firms are slowing down, and some regional housing markets, like Boise and Seattle, are already experiencing a price correction.

While the 2022 housing market downturn doesn’t mirror the 1981 or 2008 crash exactly, it shares traits of both. Just like in 1981, the 2022 housing market has crumbled due to a historic mortgage rate shock. And as in 2008, the current housing market has become detached from underlying economic fundamentals. While experts can agree that the housing market entered a downturn this summer, the numbers aren’t reflecting a Federal-induced recession just yet. And that is largely due to homebuilding.

If Wells Fargo's forecast—which also predicts a 5.5% decline in U.S. home prices in 2023—comes to fruition, it'd mean that the housing market downturn reaches a level that historically only occurs during recession.

While the housing downturn appears to be on a trajectory that could push the U.S. economy into recession, nothing is certain. If inflation eases, the Fed could pivot policy before a recession becomes locked in. There's also the theory that a significant drop in residential investment—which makes up 4.6% of GDP—wouldn't be as impactful on today's less housing dependent economy. While it's true that private investment topped out at a much higher share of GDP in 2005, we're actually slightly above the share seen in 1981. In other words, don't underestimate housing.

But "recession" or "no recession," the housing industry is clearly feeling the pinch of the tightening cycle. It's hard to see that changing anytime soon.

Read more

Related Stories

Financing

Are Slower Rate Hikes Enough to Bring Buyers Back to the For-Sale Market?

Homebuyer demand rebounded slightly after a small dip in the 30-year fixed-rate mortgage, but an inflated economy continues to pose affordability challenges even in a cooling market

New-Home Sales

Up, Up, and Away—the Housing Market Gains Momentum at the Start of 2023

As home sales increase and mortgage rates slowly decline, housing experts say the market is gaining steam in 2023

Financing

Falling Mortgage Rates Are Jump-Starting a Stagnant Housing Market

The 30-year fixed-rate mortgage is down nearly a whole percentage point from its 2022 peak, and that boost in affordability is motivating prospective buyers to make a market comeback

Advertisement
boombox1 -
Advertisement
native1 - default
halfpage2 -

More in Category




Advertisement
native2 - default
Advertisement
halfpage1 -

Create an account

By creating an account, you agree to Pro Builder's terms of service and privacy policy.


Daily Feed Newsletter

Get Pro Builder in your inbox

Each day, Pro Builder's editors assemble the latest breaking industry news, hottest trends, and most relevant research, delivered to your inbox.

Save the stories you care about

Lorem ipsum dolor sit amet lorem ipsum dolor sit amet lorem ipsum dolor sit amet.

The bookmark icon allows you to save any story to your account to read it later
Tap it once to save, and tap it again to unsave

It looks like you’re using an ad-blocker!

Pro Builder is an advertisting supported site and we noticed you have ad-blocking enabled in your browser. There are two ways you can keep reading:

Disable your ad-blocker
Disable now
Subscribe to Pro Builder
Subscribe
Already a member? Sign in
Become a Member

Subscribe to Pro Builder for unlimited access

Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.