St. Louis Fed’s Housing Market Perspectives: Storm Clouds Approaching the Housing Market

ST. LOUIS - Recent increases in housing starts, home sales and home prices could be a harbinger for the broader economy. But these positive signs may not point to a broader recovery in the near future, according to a new analysis by the Federal Reserve Bank of St. Louis.

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

• A few indicators suggest the housing market is a bright spot in an otherwise gloomy outlook for the U.S. economy.
• This housing cycle is likely to be different from previous ones and may not forecast the economy’s direction as it has in the past.
• Forward-looking indicators suggest a weak outlook for housing and the economy.

In the publication, William Emmons, an assistant vice president and economist at the St. Louis Fed, said the housing market may not be as strong as some recent data might suggest.

He explains that recent strength in housing starts, home sales and house prices could be sending misleading signals for two reasons. First, the recent housing recovery may have been driven mainly by the falling mortgage rate, not prospects for broad economic recovery. Second, the coronavirus shock that hit the economy this year and the policy responses that followed are unlike anything in recent history.

“It is possible this recession and the subsequent recovery will be different, too, even though the mortgage-rate cycle so far conforms to earlier cycles.”

For more on Emmons’ research, check out the latest issues of Housing Market Perspectives at: https://www.stlouisfed.org/publications/housing-market-perspectives/2020/storm-clouds-approaching-housing-market.