Housing Indicators To Watch In 2019

from the St Louis Fed

Can the housing market provide a signal about the direction of the economy? A recent issue of Housing Market Perspectives explored that question, finding that the state of the housing market may provide insight into future economic activity.

“Housing downturns have preceded every U.S. recession since World War II," wrote William R. Emmons, senior economic adviser for the St. Louis Fed’s Center for Household Financial Stability.

Current State of the Housing Market

Emmons looked at recent movements in four housing indicators:

  • Mortgage rates
  • Existing home sales
  • Real house prices
  • Momentum of residential investment

He found that they resemble patterns seen in the late stages of past expansions. (For figures showing these trends, see the Housing Market Perspectives article “Recession Signals: Four Housing Indicators to Watch in 2019.")

Though several housing indicators suggest another housing downturn may be on the horizon, a broader economic recession is by no means inevitable, he noted.

“[S]ome past episodes of housing weakness have proved to be false alarms," the author wrote.

However, if the housing market were to weaken further, the risk of a recession certainly would be higher, Emmons noted. He pointed out housing’s forecasting track record: A housing downturn is necessary but not sufficient for a recession to occur.

Emmons explained how these four housing indicators behaved before the past three recessions.

30-Year Fixed Mortgage Rates

By taking the average quarterly interest rate on a 30-year fixed mortgage and subtracting the average rate during the previous three years, one can see a pattern in the movement of interest rates. The author described this three-year average as “recent levels."

“[M]ortgage rates generally rise above their recent levels in the final years of an economic expansion," Emmons wrote. “By the time a recession begins … mortgage rates already have declined below their recent levels."

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Disclaimer: Views expressed are not necessarily those of the Federal Reserve Bank of St. Louis or of the Federal Reserve System.

No content is to be construed as investment advise and all ...

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