Is the housing market entering a recession? What would that mean?

With new ground broken on 982,000 homes in June, the building industry has contracted 19% since February and 16% on the same month in 2021. Builders are cutting back as the housing cycle turns over. In short, we are in a housing recession.

With existing home inventory continuing to rise and homebuilding continuing to slow, it is expected that prices could fall in the bubbly markets like Phoenix, Nashville, Las Vegas, and Austin.

Rick Palacios Jr., head of research at John Burns Real Estate Consulting, says,”Builders are already [deciding] to not pour slabs in certain markets. Which is the technical trigger for a start for a home. In certain markets it will feel like [a housing bust].”

While this housing recession will hit markets coast to coast, it is not evenly distributed. The Western areas are particularly hard hit, with inventory in Denver hitting 247% while in Pittsburgh it is only 18%. This is widely seen as a result of the western markets being the most “overvalued” in the country. With the pandemic-inspired housing boom artificially raising prices in places like Boise beyond what the local market could support, prices are now falling to address the balance.

Nationally, prices are expected to fall by around 5%.

This is not at all unexpected. Indeed, you could say that it is by design.

Earlier this year, the Fed triggered a mortgage rate rise by selling bonds so that the pandemic housing boom could be snuffed out. Chair of the Federal Reserve Jerome Powell told reporters last month, “I’d say if you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again.”

To the Fed, “reset” means falling house prices. They set off a chain of events designed specifically force that situation, so many industry experts believe that it will surely follow.