{"id":83450,"date":"2022-11-13T11:39:19","date_gmt":"2022-11-13T15:39:19","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=83450"},"modified":"2022-11-14T16:54:50","modified_gmt":"2022-11-14T20:54:50","slug":"housing-market-economy","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/housing-market-economy\/","title":{"rendered":"Will the Housing Market Leave Our Economy in Crisis?"},"content":{"rendered":"\n

How are the housing market<\/a> and economy connected? What happens if the housing market crashes? Will there be another recession?<\/p>\n\n\n\n

As home prices drop and rumors of recession haunt headlines, concerns are mounting that we might be headed for a repeat of the Great Recession of 2007-2009. According to Naked Economics<\/em>, modern markets are all interconnected, so the failure of one part of the economy can cause a domino effect.<\/p>\n\n\n\n

Read on to learn what the future holds for the U.S. housing market and the larger economy.<\/p>\n\n\n\n\n\n\n\n

Housing Markets & the Economy<\/h2>\n\n\n\n

As we face a softening housing market, the economy as a whole could be negatively impacted as fears of the Great Recession of 2007-2009 loom. Due to the pandemic, demand for homes surged in 2020 and 2021: Bidding wars sent prices skyrocketing and buyers waived inspections or offered cash to beef up their offers<\/a>. Between February 2020 and June 2022, home prices rose by 44%<\/a>. <\/p>\n\n\n\n

Today, sales of new<\/a> and existing<\/a> homes have fallen by close to 30% since January and home prices have started to decline. Many industry watchers expect prices to continue to fall between 5% and 10%<\/a>, and some are predicting double-digit decreases<\/a>. <\/p>\n\n\n\n

The primary driver of the housing market downturn is the spike in mortgage rates triggered by the Federal Reserve\u2019s recent interest rate increases. Average rates for 30-year fixed mortgages have risen to more than 7%; through much of the past few years, they hovered around 3%<\/a>.<\/p>\n\n\n\n

This makes homes more expensive: A buyer today can get a house of $300,000 for the same monthly payment that would have afforded them a house of $460,000 last year<\/a>. <\/p>\n\n\n\n

The predictable result is that homebuyers are hesitating. Mortgage applications are at their lowest levels since 2000<\/a>, and homes are sitting on the housing market longer<\/a>.<\/p>\n\n\n\n

What\u2019s the Danger to the Larger Economy?<\/h3>\n\n\n\n

The concern is that the softening housing market will bleed into the wider economy, and that industries selling goods like appliances, lumber, and windows will also see decreased demand. <\/p>\n\n\n\n

If demand for these goods falls and prices do too, the Fed will have achieved its goal of dampening inflation. However, this success might come on the back of economic pain if falling consumer spending leads to a recession.<\/p>\n\n\n\n

The Health of an Economy<\/h4>\n\n\n\n

According to Naked Economics<\/a><\/em> by Charles J. Wheelan, in order to properly evaluate the strength of an economy, economists must first figure out how to\u00a0measure<\/em>\u00a0economies. There are several markers of economic health<\/a> that they look at, but the primary one is an economy\u2019s\u00a0gross domestic product<\/em>, or GDP.\u00a0GDP summarizes the value of all the goods and services an economy produces.<\/strong>\u00a0It\u2019s the number that people generally refer to when they talk about a country\u2019s growth: If you say the U.S. grew 3 percent this year, what you mean is that the U.S. produced 3 percent more goods and services this year than it did last year.<\/p>\n\n\n\n

In addition to GDP, there are some other numbers that economists often refer to in order to judge how an economy is faring. These include:<\/p>\n\n\n\n