Recent movements in several housing indicators, including mortgage rates, existing home sales, real house prices and the momentum of residential investment, could suggest another housing downturn may be on the horizon. William Emmons, assistant vice president, and chief economist of the St. Louis Fed’s Center for Household Financial Stability looks into the possibility that current housing market signals may mean a broader economic downturn in 2019 or 2020.
The key takeaways for this quarter’s Housing Market Perspectives are:
- Recent movements in several housing indicators resemble those seen in the late stages of past economic expansions.
- Not all housing indicators point to a slowdown
- Key indicators to watch include mortgage rates, existing home sales, real house prices and the momentum of residential investment.
In this latest report, Williams compares the four housing indicators with their trajectories near each of the three previous recessions to gauge whether the housing market is now at a stage that, in earlier decades, led towards housing downturns and recessions. Williams does warn “to keep in mind that the degree of advance warning from any particular signal has varied substantially. All four housing indicators discussed have generated false alarms and instances of housing weakness that were not followed by a recession within the next few years.”
Williams believes the risk of a broad-based economic recession is possible if the housing market were to weaken further, given the forecasting track record of housing market downturns.