Four Housing Indicators Point to a Slowdown in 2020

ST.LOUIS ― Four key housing indicators—mortgage rates, existing home sales, real house prices and the momentum of residential investment—have shown movements that resemble those seen in the late stages of past economic expansions. William Emmons, assistant vice president and lead economist of the St. Louis Fed's Center for Household Financial Stability, says these housing indicators are showing signs of a slowdown in 2020.

The key takeaways for this quarter’s Housing Market Perspectives are:
• Over the past year, four housing indicators have moved in ways consistent with patterns seen before three previous recessions.
• These indicators are mortgage rates, existing home sales, real house prices and the momentum of residential investment.
• More recent housing data still point to a slowdown, albeit a less severe one.

In his latest report, Emmons updates the four housing indicators through the third quarter of 2019 to gauge the signals they may be sending about a potential near-term recession. “The value of leading indicators—from housing variables to the slope of the yield curve—is that they offer an opportunity to prepare for a possible economic slowdown or outright downturn,” Emmons said. “A recent example is the Federal Reserve’s dramatic turn from a program of monetary tightening in 2018 to one of easing in 2019.”

Emmons also states that even though housing indicators signal a possible recession, it would be a less severe one than previous downturns or there may not be one at all. “This time could be different, however, if the Fed’s timely interest rate cuts and other factors in fact help to prevent a recession in 2020. If that happens, we should reexamine the indicators that have been successful in signaling recessions in the past. In the meantime, we should not dismiss their salience.”