Amidst a climate of growing uncertainty, the United States housing market is displaying potential signs of an imminent economic downturn. Recent data suggests that housing buying conditions have experienced a significant decline, reaching levels that have not been witnessed in over four decades. This information, provided by the research investment platform Game of Trades in a post on July 5, 2024, highlights similarities between the current conditions and economic downturns observed in 1974 and 1981, both of which preceded severe recessions.
Game of Trades emphasized the severity of the situation, stating, “Buying conditions in the US housing market has collapsed. Reaching levels only seen 2 times since 1960: 1974, 1981. Both instances ended in a recession. The housing market is a key leading indicator of the business cycle.” The platform’s data, compiled from surveys conducted between 1960 and May 2024, measures buying conditions for housing and reflects the difference between consumers reporting favorable versus unfavorable conditions, adjusted by +100.
This recent decline mirrors the sharp drops observed in 1974 and 1981, periods marked by significant economic turmoil and subsequent recessions. Historically, such downturns have coincided with prolonged economic contractions. The graph provided by Game of Trades illustrates the current state of house buying conditions in the US, highlighting the severity of the situation.
The substantial and rapid decrease in buying conditions points to a significant loss of consumer confidence in the housing market, which often serves as a leading indicator for broader economic trends. Game of Trades also highlighted the housing market’s historical sensitivity 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, reducing affordability and subsequently dampening demand.
All eyes are currently on the Federal Reserve as analysts anticipate its next monetary policy decision, which is likely to impact the direction of the economy. This comes as more experts predict that the US economy may enter a recession in the second half of 2022. Given the housing market’s crucial 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 sole indicators signaling trouble for the US economy. As reported by Finbold, home valuations have reached levels not seen since the previous financial crisis in 2008, raising concerns about an impending recession. Additionally, rising unemployment rates have also contributed to recession indicators, further exacerbating the economic situation.
