Does Homebuilder Sentiment point to a Housing Recession?

Homebuilder sentiment on the housing market dipped to a new low in August. After eight straight months of decline, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) landed at 49–just south of breaking even. 

NAHB Chief Economist Robert Dietz credits a combination of persistently elevated construction costs and the Federal Reserve’s measures to fight inflation with bringing on a housing recession. And Peter Boockvar, Bleakley Advisory Group chief investment officer, is pointing to the latest reports on housing and manufacturing as proof of the same. 

While there’s no arguing with the visible evidence of an economic recession, it’s misleading to equate that with a housing recession. 

They’re not the same. So, what’s happening in the housing market?

Recession warning 

Peter Boockvar issued a dire warning that the recession is spreading to other parts of the economy—including the housing market. He says there’s no way to avoid a recession and believes we’re “not being sensitive enough to this economic slowdown and what it’s going to mean for corporate earnings and profit margins.” 

Almost exactly a year ago, Boockvar predicted a housing collapse on CNBC’s “Trading Nation.” Part of this prediction claimed the Federal Reserve was creating a real estate price bubble that would wipe out home equity. 

While the major indexes started this week in the green, Boockvar is skeptical, pointing to the three stages of a bear market and suggesting investors are in denial. 

An economic recession does not equal a housing recession

This week’s episode of The Real Word podcast touched on Boockvar’s warning and what’s happening with the U.S. housing market. 

Byron Lazine referenced the investor’s words and pointedly disagreed, stating that what we’re dealing with is not a housing recession but a return to a more normalized market.

He’s saying we’re just in the beginning. So, I’m not aligned with this investor. We’re not in a housing recession. We’re in an economic recession—two different things. We’re in a normalizing housing market…

Byron Lazine

Lazine also stressed the importance of educating consumers on the difference between an economic recession and a housing recession, using data-backed visuals to drive home the point. 

Consumers are sitting on the sidelines

If the housing market is not entering a recession, what is happening? Instead of jumping into the market full force, buyers, sellers, and homebuilders are sitting on the sidelines, creating a cold war in real estate as they wait to see what happens next. 

Here’s a breakdown: 

• Buyers are holding back. High inflation and elevated mortgage rates make buying a home more expensive and have, as a combined force, priced many buyers out of the current market. 

• Sellers are holding back. Sellers have noticed the drop in buyer offers and the shrinking of over-ask margins. More are responding by holding back, waiting to see if mortgage rates will dip again, drawing more buyers into the market and ramping up competition for listings. 

• Homebuilders are frustrated. Builder confidence in the market is clearly suffering right now. National Association of Home Builders/Wells Fargo Housing Market Index shows a six-point decline for August. And as there’s no sign of an imminent correction, that decline could continue. 

Top takeaways for real estate agents

The more you know about the market, the better able you’ll be to educate consumers on the advantages of buying and selling in today’s market. 

You can’t predict what will happen with mortgage rates in the coming months, but with the abundance of data available, you can make sure your clients understand the choices they face and the costs and benefits of each.

Scaring consumers with the latest headlines won’t help anyone. 

Stay on top of the news that affects your clients and keep them up to date. And learn how to address common objections with empathy and reliable data.