Housing experts and national economists all agree — there’s no doubt that the U.S. housing market has cooled dramatically compared to its red-hot levels over the past two years.
But economists are split on whether to go as far as calling it a housing recession.
Fortune last month declared the housing market was entering recession territory as homebuilders cut back and existing home inventory ticked up as higher mortgage rates and inflation strangled demand.
As mortgage rates have lingered between 5% and 6% and concerns about a nationwide economic recession loom, “June appeared to be a tipping point, with a more significant pullback in buyer interest which will be reflected in next month’s data,” Selma Hepp, CoreLogic’s deputy economist, wrote in a post on her LinkedIn page last week.
Because housing activity has declined for several months now, “many housing indicators do point to a recession in the U.S. housing market,” Hepp told MarketWatch.
Chris Low, chief economist at FHN Financial, also agrees the housing market is in a recession.
“Housing is a leading indicator of the broad economy. I would say housing is in a recession, and that likely means the rest of the economy will be in a recession soon,” Low said in an email to MarketWatch.
Last month, Len Kiefer, deputy chief economist at Freddie Mac, tweeted that the U.S. housing market was at “the beginning stages of the most significant contraction in activity since 2006,” noting mortgage applications were down 40% from last year’s peak, foreshadowing a large summer decline.
On Thursday, Kiefer tweeted residential construction had slowed so much, it had yanked U.S. gross domestic product growth down in the second quarter of this year.
“A persistent slowdown in residential construction is often a precursor of a recession, however there are exceptions like the mid 1990s and 2018,” Kiefer tweeted.
Others, like Nancy Vanden Houten, lead U.S. economist at Oxford Economics, told MarketWatch it’s not common practice to declare whether the housing market is in a recession — though there are indicators that point to a housing slowdown.
“We are seeing weakness right now in the major housing indicators and we expect the residential sector to be a drag on GDP growth over the next several quarters,” Houten told MarketWatch, “but we don’t declare on the basis of that, that the housing market in isolation is in recession.”
Richard Moody, senior vice president and chief economist at Regions Financial Corporation, agreed.
“I’m not really sure what it means to say ‘the housing market is in a recession,’” Moody told MarketWatch.
Economists do agree that the U.S. housing market is in a totally different climate than it was in 2006 and 2007, when banks’ risky lending practices, which was fueling a synthetic housing demand, caught up to them and the housing bubble burst. Housing experts and economists note today’s housing market demand is real, with not enough homes to quell what’s been a persistent nationwide housing shortage.
So while the market has slowed from heightened demand amid the pandemic frenzy over the past two years, demand has only tempered, not disappeared.
So perhaps the “market is simply normalizing,” Moody told MarketWatch, “rather than collapsing.”