RECESSION WATCH

Housing Market Emerges as Top Recession Risk

As earlier concerns over tariffs ease, economists and market watchers are increasingly focused on a different economic weak spot: the U.S. housing market. A growing number of analysts believe it could be the tipping point that pulls the economy into recession.

Recession Watch:

Signs of economic strain are building, with recession odds climbing to as high as 65%, according to forecasts from Moody’s and JP Morgan. While trade tensions once dominated recession chatter, attention has shifted to housing — now considered one of the most immediate risks to economic momentum.

Why Housing?

Citi Research reports a clear slowdown in housing activity, with contraction expected in the second quarter following a tepid start to the year. Mortgage rates hovering around 7% and stubbornly high Treasury yields continue to weigh on affordability and demand. Inflation-adjusted residential investment remains stagnant, while key indicators like building permits, home prices, and inventory trends point to growing weakness.

Consumer Confidence Sags:

Homebuyer confidence has sharply deteriorated. Fannie Mae’s April 2025 survey found that 77% of respondents believe it’s a bad time to purchase a home, and the Home Purchase Sentiment Index has fallen to a net -55% for buying conditions — one of its lowest readings in years.

Commercial Real Estate Under Pressure:

It’s not just residential feeling the strain. Commercial property values are declining as well. MSCI’s Real Capital Analytics index logged its first across-the-board price declines in major property sectors since 2010, with multifamily properties hit hardest — down 12.1% year-over-year.

The Fed Stands Pat — For Now:

While the Federal Reserve isn’t expected to pivot policy based solely on housing market weakness, Citi notes the central bank could be forced to act sooner if housing-related job losses start to materialize. At present, policymakers appear content to monitor conditions before making any moves.

➥ THE BOTTOM LINE

While housing may not single-handedly trigger the next recession, it’s increasingly clear this is where early signs are showing up. From declining permits and prices to eroding buyer sentiment, the sector is signaling that the broader economy’s strength could be fading.