Looking at Recession Signals in the Latest Housing Market Perspectives

ST. LOUIS ― Recent data on single-family home sales through May 2019 confirm that housing markets in all regions of the country are weakening. What does that mean? In his latest publication William Emmons, assistant vice president and chief economist of the St. Louis Fed's Center for Household Financial Stability, studies several housing indicators looking for signs of a possible recession around the corner. Movements in mortgage rates, existing single-family home sales, inflation-adjusted house prices and residential investment contributions to economic growth all seem to resemble patterns that preceded the last three recessions of 1990, 2001 and 2007.

The key takeaways for this quarter’s Housing Market Perspectives are:

• Single-family home sales are a reliable indicator of housing market strength.
• New- and existing-home sales rates have declined in all four census regions.
• Based on previous cycles, the recent downturn in U.S. home sales is consistent with a broader economic slowdown in the near term.

Emmons says when taking a longer view at the data he sees a significant slowing, “The severity of the housing downturn appears comparable across regions—in all cases, it’s much less severe than the experience leading to the Great Recession but similar to the periods before the 1990-91 and 2001 recessions.”

Emmons admits that the behavior of housing prices at regional and local levels varies widely across housing markets and business cycles. However, his sources have proven to be reliable indicators for housing downturns as well as possible economic downturns. These sources include existing-home sales published by the National Association of Realtors and new-home sales published by the Census Bureau.