Economists: A US housing recession has already arrived

This has been a year of watershed moments in real estate, and not the good kind.

The Housing Market Index, a closely watched industry metric that gauges the outlook for home sales, declined to 33 in November on a hundred-point scale, its lowest level in a decade, save for the first dystopian month of the pandemic. Anything under 50 spells trouble.

A month earlier, interest rates on a standard 30-year mortgage passed 7 percent, capping the largest single-year increase in at least 50 years.

“Just to give you a sense of how far we’ve come, we started the year around 3 percent,” said Michael Fratantoni, chief economist at the Mortgage Bankers Association. “It has just been a wild ride.”

The difference between a 3 percent interest rate and a 7 percent rate amounts to $1,000 more in a monthly mortgage payment on a mid-priced American home, according to Nadia Evangelou, senior economist at the National Association of Realtors.

Interest rates have retreated to 6.3 percent this month, seeding fresh hope for the few remaining buyers on a diminished housing market.

After an unprecedented campaign of rate hikes, Federal Reserve Chairman Jerome Powell has signaled that the central bank will ease up.

That’s one reason mortgage rates are ticking down. The other is more sobering.

“We, others, many market participants are forecasting a recession in the United States and many other places around the world,” Fratantoni said. “That puts downward pressure on the rates.”

The housing market is already in recession and has been since midsummer, according to the National Association of Home Builders, which publishes the Housing Market Index with Wells Fargo.

“The index has declined for 11 straight months,” said Robert Dietz, chief economist for the homebuilders group. “This is going to be the first calendar year in 11 years where single-family starts,” a measure of new home construction, “will total a smaller volume than the prior year.” He predicts a double-digit decline.

A Flourish chart

Where the housing market goes, the broader economy follows. Dietz, Fratantoni and others in the industry expect the nation to tip into recession, a state of economic malaise generally defined as two successive quarters of decline.

“The housing market leads the U.S. into recession, and it’s likely to pull it out,” Fratantoni said, with recovery arriving around the middle of next year.

And what does all this mean for homeowners?

For most: Staying put. The vast majority of homeowners are blessed with fixed-rate mortgages secured at historically low interest rates, under 4 percent. There’s little incentive to sell.

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