Housing-market bottom raises hopes that US can avoid recession

[Brandon Parry]

Historically, housing has been a crucial driver of the business cycle, with low-interest rates boosting demand for homes and supporting construction jobs and consumer spending.

Conversely, rising rates tend to dampen the housing market and lead to a slowdown in economic growth. The Federal Reserve is expected to wrap up its tightening campaign soon, which will likely lead to a decline in mortgage rates. This, along with a resilient job market, has helped key housing indicators rebound in the early months of 2023. For instance, new-home sales jumped in March to the highest level in a year, while home construction projects have risen about 6% over the last two months.

Although the US is still expected to enter a recession at some point, the article suggests that a strong housing market could help the country avoid a severe downturn. As long as people remain employed and have a good income, they'll continue to buy and sell homes, especially if mortgage rates don't increase further. Moreover, lower home prices and mortgage rates could bring in more buyers and increase affordability.

So far, the labor market has remained resilient despite a year's worth of rate hikes. However, some economists warn that a wave of construction layoffs could be on the horizon as new projects take longer to have an impact on employment than in the past. A strong housing market could help limit the impact of a potential recession.

Housing Market Bottom