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What does 'housing recession' even mean? Economists don't really know

Monday, August 29, 2022   /   by Dave Magua

What does 'housing recession' even mean? Economists don't really know

The U.S. has entered a “housing recession,” CNBC declared last week.

The very same day, U.S. News and World Report announced that the “housing recession” was in fact deepening.

Market WatchThe Hill, and a bunch of local news stations have offered their own takes as well, all of them arguing that a “housing recession” has begun.

Suddenly, it seems, the idea of a housing recession is everywhere.

But while the idea of a recession, in general, is commonly understood, the notion that a recession could apply to just one sector such as housing is a significantly more novel idea — and one that few people were talking about up until very recently. So Inman wanted to know: What is a housing recession? Is this a technical term? And are we, in fact, in a housing recession right now?

Inman spoke to a handful of economists to get answers. The takeaway from these conversations is that the term is only loosely defined. Moreover, while it’s clear the market is shifting and a downturn is unfolding, there are also some indicators of economic strength. And as a result, there’s still a debate about the applicability of the word “recession” to what’s happening in real estate right now.

Here’s what you need to know:

When did this term become a thing?

The economists who spoke to Inman for this story all said that the phrase “housing recession” appears to be a recent addition to the lexicon. No one had a specific date for when it might have arisen, but, also, no one recalled hearing anyone talk about a housing recession in the distant past. George Ratiu, a senior economist at Realtor.com, speculated that the term’s popularity right now is at least in part due to analysts latching on to a buzzy phrase and idea. “Historically,” he added, “I have not seen the term ‘housing recession’ used.”

Google seems to confirm the sudden popularity of the phrase. Though there appear to have been a few isolated uses of “housing recession” over the last five years, it wasn’t until this summer that the term really saw any widespread online popularity.

A Google search for the exact phrase “housing recession” prior to 2022 also produces few results. Though there are numerous articles and reports discussing the relationship between housing and recessions generally, there are only a tiny handful of articles — such as this 2010 piece from Forbes — that seem to posit the idea that housing as a sector can be in a recession of its own.

On the other hand, there are at least dozens of articles from this year, many published in just the last few weeks, that describe a housing recession.

The surge in the term’s popularity is no doubt the result of many factors, but an August report from the National Association of Home Builders (NAHB) appears to have played a particularly significant role in pushing the idea of a housing recession into the mainstream. The report noted that home builder confidence was “underwater,” and declared that “tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession.” That report has gone on to earn numerous citations in the press, which partially helps explain the spike on the Google Trends graph above.

So what exactly is a housing recession?

One of the challenges with all this talk of a housing recession is that, as a relatively new term, there’s not exactly a specific definition for what it means. And in fact, the economists who spoke to Inman for this story said that the term is not a technical phrase in their field. It has no rigid, rigorously defined parameters.

That contrasts with the idea of a more general recession; though there are debates about what counts as a recession, economists have in the past worked out specific definitions, such as two consecutive quarters of negative GDP growth. The term housing recession doesn’t have such tidy parameters.

Still, the experts using the term are generally referring to specific things. Lawrence Yun, chief economist for the National Association of Realtors (NAR), was recently quotedas saying the U.S. is in a housing recession. Asked what the term specifically means, Yun indicated that he is drawing on a wide range of metrics to make his assessment.

“There is a housing recession in terms of fewer home sales, lower housing starts, and declining mortgage lending, especially the collapse in mortgage refinance,” Yun said in an email, adding that there have also been job cuts in the homebuilding sector.

Jeff Tucker, a senior economist at Zillow, described the idea of a housing recession as a “bit of a terminological innovation,” and one that seems to have recently gained traction. And he said that if he were pinning down an exact definition, he’d look for trends in the housing market matching conditions that count as a recession in the broader economy.

“What this term must be describing is a slowdown in economic activity in the housing sector that’s sort of broad based and deep enough to register, and lasting more than a few months,” Tucker said.

In other words, a working definition for a housing recession might be this: a downturn that’s measurable by multiple metrics — the starts, lending and sales that Yun pointed to, among other things — and which is both deep and at least somewhat long-lasting. It’s a downturn, but more pronounced.

That may still sound vague, but the term is still new enough that it’s hard to get a lot more specific.

Various economists also urged caution when using the housing recession terminology. Tucker stressed this point, noting that it would be easy for people to misconstrue what is actually going on because they have a preconceived idea of what a recession is in general. For example, he suggested some people might interpret a housing recession as a broader economic downturn that was triggered by the housing sector, a la what took place in 2008. But that is decidedly not what is happening right now.

“I don’t see any evidence that anything like that is underway,” he added.
Daryl Fairweather, Redfin’s chief economist, similarly urged caution and noted that the word “recession” typically carries a negative connotation, which may not quite capture what’s happening right now.

“A ‘recession’ implies that there’s something fundamentally wrong that happened,” she said. “But I don’t think there is something fundamentally wrong that happened. It was just a natural reaction to lower rates and then higher rates.”

Are we actually in a housing recession now?

Because there’s no fixed or universal definition for the term, the economists who spoke with Inman were hesitant to give a simple yes or no response when asked if the U.S. is currently in a housing recession. All of them agreed that there has been a marked downturn in the housing industry, but in some cases preferred other less dramatic terminology.

“I would call it a housing hangover,” Ratiu offered, arguing that the current landscape is a response to unusually heady times. “We’re sobering up after an unusual two-year period in which we saw massive monetary and fiscal stimulus.”

Ratiu went on to note that growth in the housing sector is “moderating” but that prices have not collapsed and in some cases are continuing to rise by double digit percentages. That doesn’t mean the housing market isn’t also sluggish in many respects, but Ratiu noted that the housing market is not currently in “free fall,” which is what some people might understand when hearing the word “recession.”

“I think if anything, looking at the current market, we’re simply trying to return to the long-term trajectory, sort of pre-pandemic, which was a really good place to be,” Ratiu said. “The return to the pre-pandemic state in itself simply means we’re moving toward a more balanced and healthier market.”

Fairweather made a very similar point, saying that while calling the current situation a housing recession might help people understand what’s happening, she prefers to call the current situation a “cool down.”

“It’s definitely a large cool down,” she added. “It really is cutting into home buying demand. It’s also meant a pull back from sellers, as they don’t want to accept these lower prices. Part of this is just a hangover from earlier in the year when it was so hot and really unsustainable.”

In Tucker’s case, he noted that there is a lot of evidence pointing to a slowdown. Among other things, he said “new home sales are down substantially,” builders have “battened down the hatches,” and there’s “certainly less work to go around for mortgage lenders.” But Tucker also said it’s still unclear how long current conditions will last.

“The volume of transactions taking place is down,” he said. “Will that continue for more than a few months? It’s a little too soon to tell.”

And Yun, who has been a proponent of the housing recession terminology, ultimately indicated the situation is complicated. Though he pointed to fewer homes sales and housing starts, he also doesn’t anticipate a spike in foreclosures, said most homes are selling above asking, and noted that the market is still “on a solid foundation with imperceptible distress.”

“Homeowners are still experiencing wealth gains,” Yun continued. “Let’s just hope that home price growth will moderate to a single-digit percentage rate of annual appreciation to give a prospective homebuyer’s income a better chance to catch up.”

So the answer to the question, “are we in a housing recession” is, in the end, complicated. By some measures, yes. By others, perhaps not.

What is clear, though, is that the term itself appears to be gaining a foothold, and may be here to stay.

“It’s very likely,” Ratiu said, “that from 2022 onward it might become a common term.”


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