Yahoo Finance

How a housing downturn could lead to a recession

Ines Ferré · Markets Reporter
Thu, June 2, 2022, 1:11 PM · 3 min read

The housing market is starting to show signs of a slowdown. If the trend persists, the U.S could see an impact in other sectors of the economy — starting with big-ticket items that go into furnishing a new home. ... "The housing market is very much a leading indicator of the economy because of the knock on effects through the various sectors, like consumption of durable goods," Eric Basmajian, founder of EPB Macro Research, told Yahoo Finance.

He predicts durable goods such as large appliances that go into a home could cool off as fewer homes are sold. ... “We’re going to see a cooling of new orders, and then we're going to see a pullback in industrial production or the manufacturing sector more broadly," said the researcher.

New orders for durable goods in March were up .4%, a slowdown from .6% in the prior month. Retail foot traffic compiled by SafeGraph and analyzed by Bloomberg for the 3rd week of May showed the sector with the biggest decline was home improvement and home furnishings, down 24.6% year over year. ... The housing industry has already seen a substantial decline in number of sales and loan applications as 30-year mortgage rates shot up from around 3% at the end of last year, to current levels north of 5.25%.

“If we see several more months of declines in housing data, including building permits and housing starts, that would be a very clear sign that the housing market is undergoing a slow down in volumes and that risks employment in the construction sector,” said Basmajian. ... “I'd very much be on the lookout for employment in the construction sector, which would be a clear warning sign that a recession is right around the corner,” he added.

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