A Housing Market in Recession

Economic and political commentators dispute whether the U.S. economy has entered a recession, but there's less debate about the housing market.

Barron's Shaina Mishkin writes that existing homes in July were sold at a seasonally adjusted annual rate of 4.81 million. Excluding an early-pandemic freeze, that's the lowest level since 2015. New-home sales were at their lowest level in six years in July, Shaina adds. She writes:

Rapidly rising mortgage rates are largely to blame. Historically low rates in 2020 and 2021 helped annual sales soar to levels unseen in more than a decade. Now, following this year’s spike in the 30-year mortgage rate, would-be buyers who could have afforded a home at last year’s rates have pulled back.

Those rates aren’t expected to return to historically low levels. Mike Dahl, an analyst covering home builders at RBC Capital Markets, says prospective buyers in many metros are stressed relative to local historic norms. “By no means has this modest pullback in rates from 6% to five and a half percent all of a sudden cured the affordability challenges that are fairly acute in most key markets,” Dahl said. “We expect the declines in demand to really persist in a meaningful way for some time.”

These worsening conditions have led economists to use the “R word” to describe the housing market’s slowdown. “Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” National Association of Home Builders chief economist Robert Dietz said earlier in August. The trade group’s latest forecast for 2022 sees existing- and new single-family home sales dropping about 14% and 16% from last year, respectively. 

A dip in demand will come as a relief for those still home shopping, especially in previously competitive metropolitan areas like Boise, Idaho; Denver; and Salt Lake City, Utah, Shaina adds, pointing to Redfin data showing a drop in July asking prices.

It'll also weigh on the broader U.S. recession debate since housing's overall share of U.S. GDP was 16.6% in the second quarter, according to Bureau of Economic Analysis data that Shaina cites.

You can read more of Shaina's report here, and follow Barron's real estate coverage here.