The housing market is long been seen as an early warning sign for recessions, and one data point in particular has caught the attention of Moody’s Analytics chief economist Mark Zandi.
Even though it’s less than 50%, Zandi pointed out that the probability has never been that high previously without the economy eventually slipping into a downturn.
A crucial component in the Moody’s indicator comes from the housing market.
“The algorithm has identified building permits as the most critical economic variable for predicting recessions. And while permits had been holding up reasonably well, as builders supported sales through interest rate buydowns and other incentives, inventories of unsold homes are now high and on the rise,” Zandi warned.
“In response, builders are pulling back, and permits have started to slump. They are now as low as they’ve been since the pandemic shutdowns.”
And not only did housing show up on the Fed’s radar, officials flagged it as a potential risk to jobs, along with artificial intelligence technology.
“In addition to tariff-induced risks, potential downside risks to employment mentioned by participants included a possible tightening of financial conditions due to a rise in risk premiums, a more substantial deterioration in the housing market, and the risk that the increased use of AI in the workplace may lower employment,” the minutes said.
