Economists warn housing market signals recession

Citi Research has warned that a potential contraction in housing activity could foreshadow a US recession, echoing the late economist Ed Leamer’s 2007 theory that residential investment is a top recession indicator.

Despite a 1% quarterly and 3% yearly rise in Q1 private residential fixed investment to $1.22 trillion, inflation-adjusted figures show zero real growth.

With 30-year mortgage rates hovering near 7% and Treasury yields climbing, housing looks shaky.

Key warning signs include falling home prices, a decline in building permits, and a growing inventory of unsold homes—even during the typically strong spring selling season.

Notably, price cuts and incentives drove a surprise surge in new home sales in April. US home sellers exceeded buyers by nearly 500,000—the widest gap since 2013, per Redfin.

Meanwhile, the number of people buying homes declined 1.2% in the first four months of 2025 compared to the same period last year.

Citi notes that while the Federal Reserve is unlikely to shift policy based on housing alone, a broader economic weakening—particularly in the labor market—could accelerate the timeline for rate cuts.