Could a recession be on the horizon as US housing buying conditions crumble after 40 years
Amidst mounting uncertainty, the housing market in the United States is displaying worrisome signs of an imminent economic downturn. Recent data suggests that housing buying conditions have plummeted to levels not witnessed in over four decades. The findings, shared by the research investment platform Game of Trades on July 5, 2024, indicate that the current conditions resemble those observed during the economic downturns of 1974 and 1981, both of which were followed by severe recessions.
According to Game of Trades, the buying conditions in the US housing market have collapsed, reaching levels that have only been seen twice since 1960: in 1974 and 1981. In both instances, these conditions led to recessions. The platform also emphasizes that the housing market serves as a key leading indicator of the business cycle.
The data provided by Game of Trades illustrates the buying conditions for housing from 1960 to May 2024. The metric, adjusted by +100, reflects the disparity between consumers reporting favorable versus unfavorable conditions.
The recent decline in buying conditions closely mirrors the sharp drops observed in 1974 and 1981, both of which were characterized by significant economic upheaval and subsequent recessions. Historical trends indicate that such downturns often coincide with prolonged economic contractions.
The substantial and rapid decrease in buying conditions signifies a significant loss of consumer confidence in the housing market, which is often a precursor to broader economic trends. Game of Trades also points out that the housing market has historically been sensitive to changes in interest rates. The current collapse may be attributed to the prevailing interest rate hikes implemented to curb inflation. Higher interest rates typically result in increased mortgage costs, making housing less affordable and thereby dampening demand.
All eyes are currently on the Federal Reserve and its upcoming monetary policy decision, as this is expected to have a significant impact on the direction of the economy. Meanwhile, more and more analysts are predicting that the US economy may enter a recession in the second half of 2022.
Given the housing market’s pivotal role in the business cycle, its volatility reflects widespread uncertainty and a decrease in consumer purchasing power. It is worth noting that housing conditions are not the only indicators signaling trouble for the US economy. Home valuations, as reported by Finbold, have reached levels reminiscent of those seen just before the previous financial crisis in 2008, sparking concerns about an impending recession. Additionally, rising unemployment rates have also contributed to other recession indicators.
