Front Range Real Estate Market Update, August 18, 2022

Market Update, August 18, 2022

You may have heard reports that say we’ve entered a “housing recession.” If you’re like me, you’ve been asking, “What is a housing recession?” Maybe you’ve also wondered, “Are we in one in Metro Denver?”

Let’s first define a recession.

The National Bureau of Economic Research defines a recession very simply. They say it’s when there’s “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” Other experts say a recession is when the economy experiences negative growth in the gross domestic product for two consecutive quarters.

So, what’s a housing recession? 

That’s an excellent question. Is it two quarters of falling prices? Is it less activity in the housing market? Is it when fewer homes sell this quarter than last? If so, does that have to occur for two quarters in a row?

A housing recession is often defined as two consecutive quarters of decline in housing starts. (A housing start is when ground-breaking occurs on the construction of a new home.) However, we could also define it more loosely and say that, like an overall recession, it’s when there’s a “significant decline” in activity in the real estate market for “more than a few months.”

Are we in one now?

Even if we agree on what a housing recession is, the question of whether we’re in one is difficult to answer.

In the last quarter of 2021, there were 7,412 housing starts in the metro area. Starts increased to 7,784 in the first quarter of 2022. During the second quarter, there were 6,970 housing starts. So there was a decline during the second quarter of 2022. We’ll have to wait and see whether housing starts have declined this quarter. Many experts think they will.

If we look at activity in the housing market, the number of homes sold in the metro area increased each month this year until May, but then declined in June and again in July. This decline hasn’t occurred for “more than a few months,” so we’ll have to wait and see whether activity indicates we’re in a housing recession.

We see declines in housing starts and market activity, but it’s too early to say we’re in a housing recession. Fluctuating interest rates and fears about inflation may depress buyer demand for homes, and we may experience an actual housing recession. However, if we do, it may be short-lived because declining prices and more homes to choose from will draw buyers into the market. 

What does this all mean?

A housing recession can have far-reaching effects on the economy. Fewer people buying homes can lead to less construction, fewer jobs, and less money circulating throughout the economy. Continue to keep an eye on the housing market and be prepared for changes that may occur in the future.