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

[Nicole Heasley Beitenman]

We need to learn how to stop wetting our pants anytime there's a hint of a recession. They may not be fun, but they're an unfortunately necessary part of a healthy market cycle. Recessions like 2008 are not common, but very few seem to be able to separate the terms "recession" from "crash." One of the reasons the economy is in the state it's in is that the feds have spent the past 6 years pumping uppers into it rather than letting it follow its natural course. And the longer we keep trying to push a recession off, the worse it will be when it finally hits. You can't prevent it forever. 

That being said, I'm not seeing any signs of a weakening housing market locally or nationally, especially if the predictions of construction layoffs are true. The inventory shortage is what's hurting the most, and we need more building, not less.