How a housing downturn could lead to a recession

[mahatmakanejeeves]

Yahoo Finance

How a housing downturn could lead to a recession

Ines Ferré · Markets Reporter
Thu, June 2, 2022, 1:11 PM · 3 min read

The housing market is starting to show signs of a slowdown. If the trend persists, the U.S could see an impact in other sectors of the economy — starting with big-ticket items that go into furnishing a new home. ... "The housing market is very much a leading indicator of the economy because of the knock on effects through the various sectors, like consumption of durable goods," Eric Basmajian, founder of EPB Macro Research, told Yahoo Finance.

He predicts durable goods such as large appliances that go into a home could cool off as fewer homes are sold. ... “We’re going to see a cooling of new orders, and then we're going to see a pullback in industrial production or the manufacturing sector more broadly," said the researcher.

New orders for durable goods in March were up .4%, a slowdown from .6% in the prior month. Retail foot traffic compiled by SafeGraph and analyzed by Bloomberg for the 3rd week of May showed the sector with the biggest decline was home improvement and home furnishings, down 24.6% year over year. ... The housing industry has already seen a substantial decline in number of sales and loan applications as 30-year mortgage rates shot up from around 3% at the end of last year, to current levels north of 5.25%.

“If we see several more months of declines in housing data, including building permits and housing starts, that would be a very clear sign that the housing market is undergoing a slow down in volumes and that risks employment in the construction sector,” said Basmajian. ... “I'd very much be on the lookout for employment in the construction sector, which would be a clear warning sign that a recession is right around the corner,” he added.

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[TheRealNorth]

1. Prices are out of whack

When you have been having bidding wars on houses, you can't tell me that builders haven't been raking it in. They just won't make as much now.

And its not like they could increase production either - between low unemployment and the crack down on illegal immigration, there probably are not enough workers to increase the rate of home construction.

[bucolic_frolic]

2. That is a hilarious article

Manufactured goods can't meet demand, and the Fed is committed to boost rates all the way to, fears, shudders, hide under the bed, 3%. Powell is soft as a wet noodle on actually doing anything. He waits for the problem to become so large he can no longer ignore it, then he does the minimum amount three months after today. Where is this recession coming from? I really don't know who is dumber - the reporters trying to find relevance and competent sources, or the sources who think they know economics because they've watched it for 10 years.

[Moostache]

3. I am calling BS...the recession that is coming is NOT due to housing.

It is due to price gouging by oil and gas companies to the tune of record prices and record profit taking in the twilight of the Petroleum Era.

There was a massive spike in gas prices back in 2007-2008 as well. The effect was a shock to people at the pump, an obiliteration of disposable income for millions, a massive and rapid tightening of spending on frivilous things like dining out, buying junk at mini-marts attached to gas stations, small purchases and delayed or post-poned durable goods purchases.

When gas prices spiral out of control like they are now and did then, two things happen:

1) Oil and gas companies refuse to absorb ANY loss or reduced profit taking
2) The macroeconomy suffers the equivalent of a massive stroke as spending is retracted and fuels fears among people who are barely making it from day-to-day in the first place.

I am fortunate enough to have a position that can absorb these insane gas price run ups. My car gets about 37-40 mpg and has a 15 gallon tank...giving me a range of ~555 to 600 miles per tank. That means at recent price points, I have paid the following for personal transportation (not including the oil change and tires and brakes I also need to have serviced and replaced):

6 weeks ago - gas was $3.45 a gallon = $51.75 a tank which was $0.09 per mile travelled
3 weeks ago - gas was $4.55 a gallon = $68.25 a tank which was $0.12 per mile travelled
Today - gas is $5.25 a gallon = $78.75 a tank which is going to be $0.14 per mile travelled

BUT...those costs are not the major problem in and of themselves on a single tank.
I need a tank of gas every 11 days or so, which puts my expenses due to gasoline around 3 tanks per month.

6 weeks ago that was about $155.25.
3 weeks ago that was about $204.75
This week that would project to $236.25 - only IF prices stop going up 20% A WEEK of late.

In the course of barely over a month, monthly expenses just for gas have gone up more than $80.
For many that might be a week or more worth of groceries and still rising...it certainly is close to cellular monthly bills for some, and for others, that $80 is never going to circulate into the economy because there is no choice but to cut expsense elsewhere to survive.

The worse this gets, the more people will stop spending to cover the budget hits and loss in purchasing power. Its a vicious circle and if its not taken seriously, it will eat the Democratic Party in November and put the Republicans on a glide path to total power in 2024 and he end of American representative republic by 2026 (or sooner).

I just do not see an answer to this problem that does not require changes that our current system is constructed to prevent. We are truly in a terrible position, the worst I can recall in my lifetime and at exactly the point we need youthful visionary leadership, we have the exact opposite on the horizon. Those who will inhabit the world of 2072 should be stepping up to demand change and those who will be dust and memory by 2052 (or sooner) should be championing a new generation and new perspective.

This current inflation crisis is not going anywhere. Republicans have absolutely zero ideas that would fix it anymore than Democrats have right now. Gas prices is the ONE THING that people focus on because its immediate pain, so too are groceries and day-to-day living expenses. This is going to swamp RvW, swamp gun control, swamp gay rights of any kind and also ignore racial justice as well. Its a perfect storm scenario that has the potential to capsize any vessels that fail to get out of its path and soon.

[TheRealNorth]

4. I too, am glad that I bought a hybrid in early 2020.

But these oil prices impact everything, driving up the price of everything as it costs more to move raw materials and finished products around.