St. Louis Fed economist says housing marking swoon foreshadows possible recession

A top Federal Reserve economist for the Eighth District that includes Arkansas said in a recent research note several historically reliable housing indicators pointed to a possible recession in late 2019 or early 2020.

In his latest publication, William Emmons, assistant vice president and chief economist of the St. Louis Fed’s Center for Household Financial Stability, studied several housing indicators looking for signs of a possible recession around the corner. Movements in mortgage rates, existing single-family home sales, inflation-adjusted house prices and residential investment contributions to economic growth all seem to resemble patterns that preceded the last three recessions of 1990, 2001 and 2007, he said.

“Through early 2019, these housing-related forecast indicators remained consistent with the possibility of a late 2019 or early 2020 recession,” Emmons said in his quarterly housing marketing report posted June 28.

The key takeaways for this quarter’s Housing Market Perspectives are:

• Single-family home sales are a reliable indicator of housing market strength;
• New- and existing-home sales rates have declined in all four census regions; and
• Based on previous cycles, the recent downturn in U.S. home sales is consistent with a broader economic slowdown in the near term

“The severity of the housing downturn appears comparable across regions—in all cases, it’s much less severe than the experience leading to the Great Recession but similar to the periods before the 1990-91 and 2001 recessions,” Emmons said when taking a longer view at the data he sees a significant slowing.

The St. Louis Fed economist admits the behavior of housing prices at regional and local levels varies widely across housing markets and business cycles. However, he said his sources have proven to be reliable indicators for housing downturns as well as possible economic downturns. These sources include existing-home sales published by the National Association of Realtors and new-home sales published by the Census Bureau.

Headquartered in St. Louis, with branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the states that comprise the Federal Reserve’s Eighth District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi.