by: Joseph Panebi ~ AnnieMac Home Mortgage
A great question came across my desk and, knowing that when one person has a question it’s likely others are wondering the same, I thought I’d share both question and response. “With housing slowing these past couple of months what does that mean for the economy? Are we heading towards recession?” The short answer; No. However, the housing industry has been a drag on the overall economy in five of the last six quarters. That doesn’t seem likely to change much until Spring of 2019. According to the WSJ, builder sentiment fell sharply this month amid worries about affordability. Prices have been climbing faster than incomes for years, in part because there aren’t enough homes on the market to meet demand.
Now with a new tax law that that reduces incentives for homeownership and the Federal Reserve raising interest rates, ownership is even more of a stretch for certain segments of the population. The housing markets helps drive furniture sales, building-material purchases and construction employment. If it falters further, it could become an even bigger drag on the economy. But this isn’t 2005 or 2006, when housing accounted for as much as 6.7% of gross domestic product, households were severely overstretched with mortgage debt and the market flamed out. Housing is less than 4% of GDP now, mortgage-debt-to-income is well below its 2007 peak and the rest of the economy appears solid.
Strong job creation, rising incomes and steady household formation should keep housing from anything like a free fall. In addition, the 3.5 months of housing supply on the market today will likely expand above 4.0 months + as we enter the winter months…which bodes very well for a greater balance of supply and demand in housing as we enter the Spring market. So, while the US and global economies are slowing we’re far from a recession and today’s housing slowdown still appears to be a 4 – 5 month event. Hope that all makes sense!