A prominent economist is warning that the US housing market is experiencing a “deep recession” and that the Federal Reserve may have to ease up on its interest rate hikes.
For the ninth consecutive month in September, homebuilder confidence declined due to surging mortgage rates and high prices which forced many potential homebuyers out of the market, according to data from the National Association Of Homebuilders.
Their index showed Homebuilder confidence hitting the lowest level it has seen since 2014, excluding the early days of the Covid-19 pandemic.
Pantheon Macroeconomics chief economist Ian Shepherdson noted that the data indicates that the housing market has been, “in a tailspin for the whole of this year.”
Shepherdson said in a note, “Activity tracks mortgage applications with a lag, and the early September numbers are grim, even before the full hit from the rebound in mortgage rates in recent weeks works through.”
He added, “In short, the housing market is in a deep recession, which is already hammering homebuilders and will soon depress housing-related retail sales.”
The National Association Of Homebuilders homebuilder confidence index’s decline in September was larger than expected, something analysts attributed to rising mortgage rates.
For the first time since the housing market’s implosion in 2008, during the Great Recession, the average 30-year mortgage rate rose above 6%. Mortgage rates have been spiking as the Federal Reserve raises interest rates, seeking to tighten the monetary supply to try and combat rising inflation.
The next decision on policy from the Federal Reserve will come Wednesday when analysts expect to see a third consecutive 75 basis point rate hike to the Fed funds rate announced by the central bank. Some analysts are predicting a full 100 basis point hike could be announced.
Shepherdson thinks troubling signs in the housing market could make the Federal Reserve rethink its policy-moves, however.
He wrote, “The longer and deeper the housing recession becomes, though, the greater the pressure it will exert on the Fed to dial back the pace of tightening. Markets currently price in an 80% of chance of another 75 (basis point) hike in November, but we think 50bp is much more likely, and the parlous state of the housing market is a key factor in our forecast.”
According to Robert Dietz, chief economist for the National Association of Home Builders, this housing recession, “shows no signs of abating.”
Dietz said, “In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buydowns, free amenities and price reductions.”
