Only on occasion are recessions triggered by the housing market. Home sales prices aren’t particularly useful as leading economic indicators; they tend to be more reactive than predictive.
But the housing market — new-home construction and existing-home sales — isn’t just intricately tied to the economy, it is much of the economy, so what’s going on with housing speaks volumes about current conditions and trends.
It’s also the one economic signal — along with, perhaps, gasoline prices — that most Americans observe every day and can speak about knowledgeably.
They might not be able to tell you the price of gold, the Fed funds rate or the S&P 500 index on any particular day. But they know from first-hand experience, observation and anecdotal evidence what they paid for their house, what its assessed value is, what houses in their neighborhood are listing and selling for, how long they stayed on the market and how many properties are for sale.
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And that’s why, when the conversation turns to housing and the economy, the two-word summations of present conditions are shifting from, “Oh, wow’ and “Too high” to “Uh oh.”
By now you’ve likely run across a headline, a report or a passing reference to the cooling housing market. The S&P CoreLogic Case-Shiller Seattle Home Price NSA Index — yeesh, what a mouthful — is showing a three-month decline of 3.35 percent. For comparison purposes, a benchmark 20-city index is up barely a quarter of a percentage point over the same period.
Mind you, the Seattle index (despite the shorthand reference, the index is for the wider metropolitan area, including Pierce and Snohomish counties) is up for the 12-month period, and by 7.65 percent, a number that on its own hardly suggests a contracting market. That’s better than the 4.57 percent gain in the 20-city index over the same stretch.
But that number taken alone doesn’t mean much. What’s even more important is what direction that number has been moving from month to month.
It’s that trend line people are noticing and wondering whether they should be at all concerned. The wariness is understandable, for four reasons:
▪ One is that the gallop of housing prices — the index was up 12.7 percent in 2017, 10.75 percent in 2016 and 9.7 percent in 2015 — has been so powerful as to threaten to trample affordability into the increasingly expensive dirt. A housing market torrid for so long does few favors for anyone (even sellers are stuck if they’re trying to buy in the same market), and carries the risk of becoming bubble-like.
▪ It’s not just housing that has been at risk of a correction. The national economy is, by historical measures, overdue for a slowdown, although a combination of low interest rates and energy prices and tax cuts have helped keep it afloat.
And while those who lost jobs and homes during the last recession might not have the same impression, this region got off lightly because aerospace and tech did well during the downturn.
▪ The third source of nervousness is that the recession isn’t so far distant in the rear-view mirror that people have forgotten what it was like.
For those who do need a reminder, the Case-Shiller index numbers are here to help: a drop of 13.35 percent in 2008 (reinforcing the view that things could have been worse, the 20-city index was down 18.6 percent that year), followed by a 7.9 percent slump in 2009 and two more years of declines, albeit smaller, after that.
▪ The fourth and potentially biggest, cause for worry is what this means for the economy.
Is a cooling, stalled or even contracting housing market the product of what’s going on in that sector, or a byproduct of underlying bad news for the economy as a whole? Can the housing market take down the economy the way it did a decade ago?
Years ago the economy and the local housing market were largely Boeing-driven affairs. As the economy grew and diversified, other factors gained influence.
The region’s recession of 2000 and forward was partly a product of Boeing’s sharp post-9/11 downsizing, but it was also driven by the dot-com bust. The recession 10 years ago, however, was housing-finance’s doing, and ultimately the economy’s undoing.
Next time? There’s always a next time, but the trick is figuring out when next time arrives or what causes it to show up.
Maybe what we’re seeing in the data is just a temporary blip, a statistical anomaly, an adjustment to a market too hot for its own good, a signal of absolutely nothing of significance about the broader economy, and a few months from now everyone will be back to marveling at or complaining about the cost of homes in this region and what pricey real estate is doing to it.
But just to be safe, and prepared, a little worry and wariness wouldn’t be inappropriate about now.