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Possible housing downturn on the horizon, St. Louis Fed economist says

A St. Louis Federal Reserve economist said recent movements in several housing indicators, including mortgage rates, existing home sales, real house prices and the momentum of residential investment, could suggest another housing downturn may be on the horizon.

In a recent report on the U.S. housing market, William Emmons, assistant vice president, and chief economist of the St. Louis Fed’s Center for Household Financial Stability, looked at four key economic indicators in the current housing market for signals that may mean a broader economic downturn in 2019 or 2020.

“Several housing indicators currently suggest another housing downturn may be on the horizon. A broader economic recession is by no means inevitable, however, since some past episodes of housing weakness have proved to be false alarms,” Emmons writes in his report, “Recession Signals: Four Housing Indicators to Watch in 2019.”

“Still, based on its forecasting track record—where a housing downturn is necessary but not sufficient for a recession to occur—the risk of a broad-based economic recession certainly would be higher if the housing market were to weaken further,” said the St. Louis Fed economist.

As one of twelve Reserve Banks across the nation, the expansive St. Louis Fed is central to the nation’s economy with branches in Little Rock, Louisville, and Memphis. To gauge whether the housing market is now at a stage that in earlier decades predicted downturns, Emmons said he compared recent readings on four economic indicators with their trajectories near each of the three previous recessions. Those key takeaways include:

  • 30-year fixed mortgage rates
  • Existing home sales
  • Real house prices
  • Contribution of residential investment to GDP growth