Recession or reset? Housing economists are divided

Housing economists are divided about whether the U.S. is currently in a recession.

Four national housing market experts presented their economic and residential outlooks Thursday in a panel at the National Association of Real Estate Editors conference in Atlanta. While they were all clear in that the market is shifting, not all were comfortable saying the overall economy is in a recession quite yet. The country has had two quarters of negative gross domestic product growth and the housing market is slowing down.

“I say that we are in a recession; just look in your 401k account, you are seeing it right there,” said Lawrence Yun, chief economist for the National Association of Realtors.

Danielle Hale, chief economist for Realtor.com, said because unemployment is only at 3.5%, the job market would need to change before she would consider calling a recession.

“I don’t think we’re there,” Hale said. “I do think that the financial adjustments that we’re seeing in the economy are likely to lead to an increase in the unemployment rate, and then I think we are going to hit a recession.”

Lisa Sturtevant, chief economist for Bright MLS, which covers the District of Columbia and the Mid-Atlantic, said different industries will feel the impact of rates at different times. The mortgage industry, for example, has already been affected. Several lenders with a presence in Dallas-Fort Worth, including Plano’s First Guaranty Mortgage Corp. and Ann Arbor, Michigan-based Home Point Financial Corp., cut hundreds of jobs earlier in the year in response to dramatically slower market conditions that were blamed on higher mortgage rates.

“I’m all about the word ‘resetting’ instead of recession,” Sturtevant said. “The issue is we have been through something over the last two and a half years that we have never been through before.

“We all have tremendous PTSD from the pandemic; we are all reacting in ways that basically economic theory wouldn’t suggest that we would.”

“I think we are fast approaching a recession,” said CoreLogic economist Selma Hepp. “Anecdotally, what I’m hearing in the industry is that there are a lot of job losses, and they’re happening on a daily basis.”

Earlier in the week, National Association of Home Builders chief economist Robert Dietz also said he believes the nation is in a recession.

Mortgage rates have increased at the fastest rate since the 1980s, pushing home affordability to the lowest levels since 2006, according to the National Association of Realtors.

Yun said he expects annual U.S. home sales to be down about 15% this year and that they will see an additional 7% decline next year.

The U.S. inflation rate in September was higher than expected, up 8.2% from a year ago, which could push up mortgage rates even further. The average rate for a 30-year fixed-rate mortgage was 6.92% as of Thursday, according to Freddie Mac.

“Inflation is here for a while, so the stock market is not liking it, the bond market is not liking the inflation number and the Federal Reserve will continue to be aggressive,” Yun said. “I’m just hoping that the 7% mortgage rate holds at this level. Today’s inflation data is going to test that 7%, but we’ll see where we go.”

Yun said he expects that next year, the forecast for U.S. home price growth will be about 0%, meaning that some markets will see prices grow and others will see declines.

“Generally speaking, the Midwest will hold on better, because they are affordable, they are less impacted by rising rates,” he said. “Southern states may hold on better because they’re seeing a lot of job growth and in-migration of people moving in.”

Hepp said to expect continued month-over-month home price declines, especially in markets in states including Arizona, Idaho, Utah and Nevada that saw the fastest price growth during the pandemic. With most homeowners having mortgage loans at rates far below the current level of about 7%, that takes out a lot of incentive for them to list their homes.

“That brings into question velocity as well as turnover rates in the housing market going forward,” Hepp said. “That incentive is now almost completely wiped out.”

In September, U.S. home asking prices were up about 14% from a year before and have been declining month over month since July, according to Realtor.com. The median listing price for homes in Dallas-Fort Worth was more than $453,000 in September. Unlike list prices, sales prices are only growing in the single digits on a national level, which could signal a disconnect between buyers and sellers.

“With mortgage rates rising, it’s harder for buyers and sellers to get to a place where they want to make a deal and get the home sale done,” Hale said. “Sellers are having to adjust. Buyers do have that extra negotiating room or are not having to pay as much above asking price.”

Hale said that while sellers are having to make adjustments in deals, the frequency of that is about on par with normal market conditions before the pandemic.

“Sellers are also, like the rest of us, trying to make sense of these uncertain economic conditions and maybe waiting to see if there can be some clarity on where the economy might be headed,” she said.