High inflation and rising borrowing costs are rapidly pushing the United States housing market into a recession, says Megan Henney, a reporter for FOX Business.
According to the latest National Association of Home Builders/Wells Fargo Housing Market Index readings, sentiments about the housing market are low. The gauge fell for an eighth consecutive month to 49, making the current numbers the weakest since the 2008 housing crisis. Just one year ago, the index stood at 80 after hitting a 35-year high in November 2020. But the days of city-dwellers rushing to the suburbs are long gone. Recently released economic data, Henney notes, shows that the housing sector is slowing rapidly. Home builders are less confident than ever in the industry and are pulling out of construction projects while buyers are canceling home sales faster than ever. Additionally, 30-year fixed-rate mortgages have shot up 5.66%, according to lender Freddie Mac, almost twice as high as the year-over-year comparison.
Buyers should remember that the current housing recession isn't a recession in home prices, says Lawrence Yun, Chief Economist for the National Association of Realtors. It's a mix of low inventories and high prices, as nearly 40% of homes are taken at the full list price, and many are purchased over asking.
The housing sector's weakness, Henney said, is indicative of problems in other parts of the economy. As spending on housing accounts for around 18% of America's gross domestic product (GDP), the Federal government's hope is that this is not a harbinger of things to come.
"While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households," Fed Chairman Jerome Powell said in a speech recently. "These are the unfortunate costs of reducing inflation."