Politico: We’re in a Housing Recession.

The Federal Reserve’s aggressive efforts to ratchet up interest rates have spurred concerns that the U.S. economy is heading toward a recession. But one pivotal industry may already be there.

The housing market has cooled so much as the Fed withdraws its support for the economy that some analysts say it may be in a slump. Mortgage rates nearly doubled in the first half of the year. The Fitch ratings service has raised the specter of a “severe” downturn that could send home prices tumbling. Housing starts plunged in July. Builder confidence has declined the most since the 2008 meltdown, and new home sales last month were down 30 percent from the previous year, Census data shows.

“I think we’re in a housing recession right now,” said Robert Dietz, chief economist at the National Association of Home Builders. “After a year and a half of post-Covid housing strength, this isn’t just a retrenchment to a more normalized trend — this is definitely a weakening.”

That’s a big deal because spending on housing accounts for as much as 18 percent of GDP, and the sector typically leads recoveries. So, even as the Biden administration touts the strength of the labor market and consumer spending holds up, a prolonged downturn in the housing market could deepen any potential recession on the horizon for the U.S. economy.

As the primary way most Americans build wealth, homeownership has long played a central role in the economy. It took on additional weight during the pandemic, buoying the turbulent times as white-collar Americans stoked demand by seeking more spacious homes amid lockdowns and work-from-home policies. Record-low mortgage rates encouraged the buying surge, and homeowners rushed to refinance loans, giving them a steadier financial foothold to weather Covid-driven volatility.

While home prices declined last month for the first time in three years, they are still up from a year ago thanks to skyrocketing growth over the course of the pandemic. But the rise in mortgage rates, driven by the Fed’s rate hikes, priced many would-be buyers out of the market.

In a note Tuesday warning that the housing market has “further to fall,” Goldman Sachs economists predicted that home price growth would “slow sharply in the next couple quarters” and fall to 0 percent in 2023.

The deteriorating market has pushed sellers to slash their asking prices. More than a fifth of the homes for sale saw price drops in July, according to Redfin, the highest level the firm has recorded since it started tracking the data in 2012.

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