The U.S. “Housing Recession”

"Economists often look to the housing market as an indicator of the health of the economy. As the COVID19 pandemic accelerated, the housing market was relatively strong, characterized by robust demand, rising prices, and increased construction. Since the latter half of 2021, spending on residential construction has faltered, leading some to believe that the United States is or was in a “housing recession.” Some have speculated that lower spending in the housing sector is a sign that overall spending in the economy will decrease and that a housing recession will lead to an actual recession. This Insight discusses the concept of a housing recession, reviews housing market trends, and considers the extent to which housing market conditions may affect the broader economy.

Background and Trends

Economists use the phrase housing recession to refer to a downturn in the housing market. While many housing market indicators are considered in general discussions of housing recessions, for the purposes of this Insight, a housing recession will be defined by the amount of and spending on residential construction.

Despite high home prices and rents, homebuilding has slumped. One of the main ways economists measure spending in the housing market is by tracking private fixed residential investment, a component of gross domestic product (GDP). Private fixed residential investment includes all spending on the construction of new single- and multi-family structures (both owner-occupied and rental), residential remodeling, and brokers’ fees. This measure allows economists to not only track spending on housing but also tie it directly to overall economic activity. As shown in Figure 1, below, residential investment has been falling each quarter since the second quarter of 2021, most recently falling by 1.1% in the second quarter of 2023. Decreases in 2023 have been smaller than those throughout 2022, but as a result of nine straight quarters of decline, the level of residential investment is now about $167 billion less in real terms than it was in the first quarter of 2021. By this measure, one could assert that the United States is experiencing a housing recession.."
Housing Recession