Why This Economist Says We’re in a Housing Market Recession
The housing market has been a rollercoaster over the past few years, swinging from record highs fueled by pandemic-era low interest rates to a slowdown that has many economists scratching their heads. While some argue we’re simply in a correction, one economist, Ian Shepherdson of Pantheon Macroeconomics, is sounding the alarm, arguing that we’re already firmly in a housing market recession.
Shepherdson’s perspective isn’t based on fear-mongering but rather on a combination of leading indicators and a thorough analysis of current market data. So, what makes him so convinced, and what are the implications for buyers, sellers, and the overall economy?
The Case for Recession: Numbers Don’t Lie
Shepherdson points to several key factors that support his argument:
- Plummeting Home Sales: Existing home sales have been on a sharp decline, consistently falling month after month. This slowdown is not just a minor dip; it’s a significant and sustained decrease, indicating weakening demand.
- Surging Mortgage Rates: The Federal Reserve’s aggressive interest rate hikes to combat inflation have had a direct and profound impact on mortgage rates. These elevated rates have priced many potential buyers out of the market, effectively stifling demand.
- Falling Homebuilder Confidence: The National Association of Home Builders (NAHB) Housing Market Index, a key indicator of builder sentiment, has plummeted. This reflects builders’ concerns about slowing demand and the impact of rising costs on profitability.
- Inventory Buildup: As sales slow, the number of homes for sale is gradually increasing, leading to a buildup of inventory. While inventory levels are still historically low in some areas, the upward trend is a clear sign of a weakening market.
- Declining New Construction: The number of building permits and housing starts are also declining, indicating that builders are pulling back on new projects in response to the weakening demand.
“The evidence is clear,” Shepherdson argues. “We are seeing significant and sustained declines in key housing market indicators. This isn’t just a seasonal slowdown; it’s a deeper, more fundamental shift.”
Beyond the Numbers: The Psychology of the Market
Beyond the quantifiable data, Shepherdson also highlights the crucial role of market psychology. Fear of missing out (FOMO), which fueled the boom, has now been replaced by fear of getting stuck (FOGS). Potential buyers, wary of overpaying at the peak, are hesitant to enter the market, further contributing to the slowdown.
Implications for Buyers, Sellers, and the Economy:
- For Buyers: While higher mortgage rates make affordability a challenge, the softening market could offer opportunities for patient buyers. With less competition and potentially lower prices, buyers may have more negotiating power and a wider selection to choose from.
- For Sellers: Sellers need to adjust their expectations. The days of bidding wars and selling above asking price are likely over. Pricing homes competitively and being prepared to negotiate are crucial for a successful sale.
- For the Economy: A housing market recession can have broader economic implications. Reduced construction activity, decreased spending on home-related goods and services, and potential wealth destruction for homeowners can all contribute to an overall economic slowdown.
Is it All Doom and Gloom?
While Shepherdson’s assessment is certainly pessimistic, it’s important to note that not all economists agree. Some argue that the current slowdown is simply a correction after an unsustainable period of rapid growth and that the housing market will eventually stabilize.
However, Shepherdson’s perspective serves as a valuable reminder that the housing market is not immune to economic forces. His analysis highlights the importance of paying attention to leading indicators and understanding the potential risks that lie ahead. Whether or not we are truly in a housing market recession remains to be seen, but the data suggests that caution and careful planning are essential for anyone involved in the market.
In conclusion, while the future remains uncertain, Ian Shepherdson’s analysis provides a compelling argument for why we might already be in a housing market recession. Understanding the factors driving this potential downturn can help buyers and sellers navigate the current market with greater awareness and make more informed decisions.
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boom
What he said about consumer spending when you own a single family home is so true.
We bought our condo thinking it would be our starter home. With this economy however, we are starting to look at it as our forever home.
One thing I noticed is that the #1 deterrent for us to purchase things is our lack of storage space.
Nice Xmas/Thxgiving/Halloween decorations? Nope. No space. Clothing? Not as much as we used to purchase when we had huge closets. We only buy what we truly need.
Instead I notice that we are spending more on experiences.
I’ve made peace with our living situation, and I see it as a positive thing.
We don’t go to Costco much anymore because we don’t have room for storing most of the things. We’ve saved SO much money.
He is right.
That's too busy a tie, with that striped shirt. But seriously, we need to get Goldman Sachs out of buying real estate.
Ek Bangali me bhi kardo dono milke
"single family"
residences are overbuilt. We need infill, not more sprawl
2020-22 was an EXTREME anomaly, bad public policy that took $6T from taxpayers of the future and funneled to banksters and developers. The stupidity created the inflation spike that predictably resulted in right wing populism and now a militant authoritarian regime. Thanks Bernanke, Paulson, Geithner, yellen, morons of destruction.
Better to rent than buy. If you buy a house with a million dollar mortgage, your monthly payments are $5,000, plus another $1,000 for taxes and repairs. So, $72,000 per year. You can rent the same house for $3,800 (owner pays the taxes and repairs), so $45,000 per year. If you take the $27,000 you save and invest it at 9% every year over 20 years, you will have $1,700,000. Meanwhile your million dollar home is 20 years older and probably not worth $2.7 million.
Stop airbnb
The issue is allowing China to out buy everyone.
Everyone thinks Trump getting bond rates lowered will result in lower bank rates like what always happens. This time there are fewer buyers of bonds, nobody wants over priced bonds at near zero interest rates any more, there will not be 3% rates coming next year to juice up real estate, the doldrums are here for years to come, a buyers market if you have cash or unlimited credit like corporations.
Private equity and residential REITS are controlling and crushing the market for the average American. Being done with the help of public pension money. Basically, selling our children's future for a 10%+ return. Time for a Come to Jesus moment.
Gosh this Host is gorgeous!!
Why do the frames of your glasses have to be so fricken big? So annoying. The 1970’s want their glasses back.