Exploring the Link Between the Housing Market and the Economy!
As the housing market correction continues to affect the United States, many are wondering if there could be a silver lining to this economic downturn. According to a recent article by Fortune magazine, the housing market recession could actually limit the depth and severity of a full economic recession that is brewing on the horizon. The article suggests that the Federal Reserve's inflation fight usually starts with the US housing market, and as pressure is applied by raising interest rates, mortgage rates will rise, causing home prices to fall. This will lead to home builders cutting back on spending and building, which in turn will cause raw materials and components like lumber and concrete to decline in price, affecting industries tied to home ownership, such as appliances and new construction homes.
Affects of Declines in Construction and Improvements on the Economy
Although declines of more than 10% in the annualized rate of investment in housing construction and improvements usually coincide with recession, it's suggested that the housing market correction will help push the US into a "mild" recession, avoiding a "deep" recession. This theory is based on the idea that the housing downturn will cause home prices to drop around 5% on a year-over-year basis, creating more affordable options for buyers. This should improve affordability, and in all likelihood, the Federal Reserve would likely begin easing rates to spur spending in order to avoid a larger recession from occurring.
Dallas Housing Market Cycle
As a local realtor in the Dallas Fort Worth Metro area, I have seen firsthand how the housing market cycles and how the seasonal market declines can impact prices. While the Spring buying season typically accounts for the majority of home appreciation, we see a slight decline in the Fall and Winter months before prices bottom out in December or January of the following year. Vanguard suggests that as the home prices bottom out later this year, the housing market could bring the US out of its mild recession, as affordability improves and the Federal Reserve begins easing rates.
The Three Factors Driving U.S. Housing Activity in the Next Few Years
They noted 3 factors that will affect the housing market positively moving forward in the next few years:
Undersupply of homes that has been an issue since 2008 great recession will favor rising home prices.
robust demographics trends( Millennial's hitting income primetime) and favorable sentiment toward owning a home.
Strong buyer fundamental and high equity cushions, which we already see in many home owners.
In conclusion, while the housing market recession may seem like a negative impact on the economy, it could actually limit the depth and severity of a full economic recession. As home prices drop and affordability improves, buyers may be incentivized to invest in the market, which could lead to a resurgence in the housing industry. It's important for the Federal Reserve to handle the situation carefully and avoid large-scale layoffs, but with the right balance, the housing market correction could actually be a catalyst for positive change. As a realtor, I'm looking forward to seeing how this plays out and how the market responds in the coming months.
