Market NewsMatthew Gardner September 26, 2022

Are We in a Housing Recession?

This video is the latest in our Monday with Matthew series with Windermere Chief Economist Matthew Gardner. Each month, he analyzes the most up-to-date U.S. housing data to keep you well-informed about what’s going on in the real estate market.


Hello there, I’m Windermere’s Chief Economist Matthew Gardner and welcome to this month’s episode of Monday with Matthew. A little while ago, a housing analyst was being interviewed about the current state of the residential market and they suggested that the country is in a “housing recession.” Well, needless to say, this got a lot of attention from the media and the public at large—for obvious reasons.

Any time the word “recession” is mentioned we almost subliminally cast our minds back to 2007. And when the word “recession” is combined with the word “housing,” then panic starts to set in with flashbacks of headlines about burgeoning housing supply, plummeting home prices, and surging foreclosures.

As this is a topic being discussed by many across the country right now, I wanted to share with you my opinion as to whether the phrase “housing recession” is an appropriate one when describing today’s market.

So, what is a recession? To answer this, I will turn to my trusted Oxford English Dictionary, and this is how they describe that word.

Definition of a Recession

A slide showing two definitions of the word "recession" from the Oxford English Dictionary. The first definition is for both countable and uncountable contexts, which defines a recession as quote a difficult time for the economy of a country, when there is less trade and industrial activity than usual and more people are unemployed end quote. The second definition is the more formal of the two, applicable in uncountable contexts. The definition reads quote the movement backward of something from a previous position end quote.

Image Source: Matthew Gardner



  • a difficult time for the economy of a country, when there is less trade and industrial activity than usual, and more people are unemployed
  • the movement backward of something from a previous position

Well, how do we use these definitions when it comes to the ownership housing market?

I guess that “less trade” could mean lower sales and we have certainly seen sales pull back. “Movement backward” could be how someone might describe the fact that sale prices have been pulling back in many markets across the country.

But although some may say that we really are in a housing recession given the definition of the word, is it really accurate? Are we are inextricably headed down a road that leads to the bursting of some sort of bubble as we all remember from 2007? I don’t believe we are. To explain my thinking let’s start out by looking at housing supply.

Inventory of Homes for Sale

A line graph titled "Inventory of Homes for Sale," showing the months January 2021 through July 2022 on the x-axis and numbers in millions on the y-axis ranging from 0.8 to 1.3. The graph shows that listing activity has risen from an all-time low of 900,000 during February 2022 to over 1.2 million units in July 2022—a 35.6% increase. Between January 2021 and October 2021, inventory ranged between 1.1 and 1.2 million before plummeting steadily toward the all-time low of 900,000 in February. Since then, inventory has rebounded to over 1.2 million again almost as quickly as it dropped.

Image Source: Matthew Gardner


Yes, listing activity is up—can’t argue with that—with the number of resale homes for sale jumping by more than a third from the start of this year. But there’s more to it than that. You see, we have to look a little further back to better understand what’s really going on.

And to do this, let’s check out the number of homes for sale during the first seven months of this year and compare those numbers to the same periods in 2018 through 2021.

Active Listings By Month

A multi-line graph titled "Active Listings by Month" showing the number of active listings for the years 2018, 2019, 2020, 2021, and 2022. The x-axis contains the months January through July, and the y-axis shows the number of listings ranging from 600,000 to two million. Overall, the graph indicates that listings remain well below the long-term average, and that the number of homes for sale in July 2022 exactly matches that of July 2021. 2022's January value is the lowest of the selected years, followed in order by 2021, 2020, 2018, and 2019. 2019 began the year with around 1.6 million active listings. In short, the July numbers show that there were hundreds of thousands more active listings in 2018 and 2019 than 2020 through 2022.

Image Source: Matthew Gardner


I don’t know about you, but this doesn’t look like a chart showing a massively oversupplied market! The number of homes for sale in July of this year was almost exactly the same as we saw last July and is still well below the levels seen in 2018, 2019, or 2020.

Sure, listings are up. But are we at levels that will cause prices to tumble? Remember that it was a massive increase in the number of homes for sale that led to the housing bubble bursting back in 2007. Listings peaked at almost 3.9 million units in 2006; but today there are 2.6 million fewer units on the market than we saw back then. Now that we’ve seen that supply isn’t at concerning levels, let’s look at demand.

Existing Home Sales

A line graph titled "Existing Home Sales." The x-axis shows every other month from January 2020 to July 2022, and the y-axis shows numbers in millions ranging from 0 to 7.0. Overall, the graph shows that, although they remain higher than the levels we saw at the beginning of the COVID-19 pandemic, home sales have been falling since January 2022. Home sales dipped sharply in March 2020 due to the onset of the pandemic, going from above 5 million to 4 million. By September 2020, existing home sales rose above 6 million, and hovered around that mark until January 2022. In July 2022, existing home sales dipped below 5 million again.

Image Source: Matthew Gardner


This chart doesn’t look too good. On an annualized basis, sales have been pulling back since the start of the year but that’s not the full story. Let’s look at this in a slightly different way.

Year-to-Date Sales

A multi-bar chart titled "Year-to-Date Sales" showing non-seasonally adjusted and seasonally adjusted sales for the past five years. The years 2018 through 2022 are represented on the x-axis, while the y-axis shows numbers in millions ranging from 0 to 4.0. 2022 year-to-date sales are lower than they were last year, but unadjusted for seasonality, year-to-date sales are higher than 2019 or 2020. And when adjusted for seasonal shifts, 2022's year-to-date sales are higher than 2018, 2019, and 2020. 2021 has the highest year-to-date sales totals, with both non- and seasonally adjusted sales figures right around 3.5 million.

Image Source: Matthew Gardner


The bars here show year-to-date sales through July—both adjusted and unadjusted for seasonality—and although unadjusted sales so far this year are lower than we saw during the first seven months of 2021, they are at about the same level as we saw in 2018 and are higher than in 2019 or 2020.

But when we adjust the monthly sales data for seasonality, year-to-date sales in 2022 were higher than all years shown here other than 2021.

So, although sales have fallen, it appears to me that we are heading back to a more realistic market rather than one that is hemorrhaging. Yet another indicator we need to consider when examining the market for evidence of some sort of recession are months of inventory , which shows how long it would take to sell every home for sale using the current monthly sales pace.

Months of Inventory

A line graph titled "Months of Inventory," which reflects how long it would take every home on the market to sell given the current housing market conditions. The x-axis displays the months January 2021 through July 2022, and the y-axis shows the number of months ranging from 0 to 3.5. The chart shows a figure of 3.3 months of inventory for July, indicating a seller's market. A balanced market is 4 to 6 months of inventory. From January 2021 to August 2021, months of inventory rose from below 2.0 to above 2.5, then dipped to just above 1.5 in January 2022. Since then, months of inventory has steadily risen to the 3.3-month figure in July 2022.

Image Source: Matthew Gardner


This graph shows that it would take three months to sell every home on the market given the sales we saw in July. That is quite a jump from the January pace but, again, perspective is everything.

Months of Inventory: Seller’s Market

A line graph titled "Months of Inventory," which presents an expanded view of inventory dating back to the year 2000. The x-axis shows the years 2000 through 2022, and the y-axis shows the months of inventory ranging from 0 to 13. The graph shows that as of 2022, we are still in a seller's market, even though listings have risen and sales have slowed. A balanced market—marked by 4-6 months inventory—is still not present. From 2000 to early 2006, the housing market stayed below 6, then leapt up to roughly 10 months by 2008. The highest months of inventory displayed is 13 between 2010 and 2011. Since then, the overall direction of the chart has trended downwards, with the lowest figure—below 2 months of inventory—appearing in late 2021/early 2022.

Image Source: Matthew Gardner


At three months, it is still a seller’s market. It’s generally accepted that the definition of a seller’s market is any number below four months; a balanced market is four to six months of inventory, and a buyer’s market is when the month of inventory is above six.

And a simple bit of math shows us that, for the market to shift from favoring sellers to favoring buyers, the number of homes for sale must break above two million—which we haven’t seen since 2015—and monthly sales would have to drop to below 300,000. We’ve only seen that happen three times in history: November 2008, and again in July and August of 2010.

Yes, listings are up, and sales are down. There’s no denying it. But, again, does the data justify the term recession? My answer would be no. But, if you’re still not convinced, let’s turn our attention to sale prices. I think that might help make things even clearer.

Median U.S. Existing Home Price

A line graph titled "Median U.S. Existing Home Price." It shows home sale price figures (displayed on the y-axis from $100,000 to $450,000) for the months January and July from 2012 through 2022 (displayed on the x-axis). a solid line tracks the median home price, showing a gradual increase over time from roughly $150,000 in January 2012 to over $400,000 in July 2022. A dotted line runs through the middle of the undulations in the solid line, following the same upward trend from 2012 through the end of 2020. But during early 2021, the solid line breaks away from the trend line, which reflects the historically low levels of mortgage rates at that time. Sale prices are starting to pull back, given the affordability constraints and high financing costs in the housing market status quo. Windermere Chief Economist Matthew Gardner expects this pull-back of prices to continue.

Image Source: Matthew Gardner


The solid line represents the median sale prices of homes over time and the dotted line shows the trend. You can clearly see that we started breaking away from the trend line in early 2021 and that’s not at all surprising as it started the month after mortgage rates hit their historic all-time low.

But today’s financing costs are significantly higher, and prices have started to slide. Although I certainly expect that we will see sale prices fall further, it appears to me as if they are simply moving back to the long-term trend, and not collapsing.

Mortgage Rate Forecasts

A multi-bar chart titled "Mortgage Rate Forecasts" showing how several institutions foresee mortgage rates in 2023. The chart shows Fannie Mae's 2023 prediction of 4.5%, followed by Freddie Mac's 5.1%, Mortgage Bankers Association's (MBA) 4.9%, 6.0% for the National Association of REALTORS® (NAR), 5.3% for Wells Fargo, and Matthew's forecast of 5.3%. Overall, rates remain higher than buyers are used to, but will not get close to the long-term average of 7.5%. It is generally accepted that mortgage rates are likely to start pulling back modestly in 2023.

Image Source: Matthew Gardner


With mortgage rates doubling from their 2021 lows, downward pressure on sale price was to be expected. But will they—as some think—rise to a level that will cause home prices to plummet? To answer that, here are the forecasts of several associations. You’ll see that all, bar the National Association of Realtors and Freddie Mac, see rates pulling back—albeit modestly—in 2023.

Of course, all these are annual averages and today’s rates are higher with the latest Freddie Mac data showing the average 30-year fixed rate above 6%—a level we haven’t seen since 2008.

However, economists including myself find it unlikely that rates will continue rising significantly from where they are today. The mortgage market is certainly in a bit of disarray right now with the yield curve inverting, but that should correct itself by early next year and that’s why we generally expect rates to start pulling back from their current levels by the start of 2023.

But if rising rates are triggering memories of 2008, you wouldn’t be alone. There are some expecting that the spike in rates will trigger a surge in foreclosures and that will doom the market. But as you see here, although foreclosure filings have certainly risen, they are still remarkably low compared to historic standards.

U.S. Foreclosure Filings

A bar graph titled "U.S. Foreclosure Filings" showing the number of home foreclosures (displayed on the y-axis from 0 to 250,000) in the U.S. from Q1 2017 to Q2 2022 (displayed on the y-axis). From Q1 2017 to Q2 2019, U.S. foreclosures remained above 150,000. Between Q1 and Q2 2020, foreclosures dropped from just below 150,000 to well below 50,000. This figure dropped further in Q3 2020 but has increased every quarter since. Windermere Chief Economist Matthew Gardner opines that this increasing trend of foreclosures is not concerning, since it does not yet represent a level of foreclosures sufficient to create an oversupply in the market.

Image Source: Matthew Gardner


In the second quarter, newly delinquent mortgages represented just 1.9% of all mortgages outstanding1 and that’s the lowest share the market has seen since 2006. Although I do expect the number of homes being foreclosed on will rise as we move into 2023, I just don’t see it getting to the levels necessary to materially impact the market. And a big part of the reasoning behind my thinking is this:

Equity Rich Households (Q2 2022)

A slide titled "Equity Rich Households (Q2 2022)" showing a map of the United States where each state's equity rich household percentage is displayed. "Equity rich" in this context signifies people with a mortgage that are sitting on more than 50% equity. The highest equity-rich state in the country is Vermont at 71.4%, followed by Idaho at 69.5%, and Arizona at 64.8%. The least equity rich state in the country is Louisiana at 23.4%, followed by Illinois at 25.4%, and Alaska at 26.7%.

Image Source: Matthew Gardner


In the second quarter of 2022, over 48% of homeowners with a mortgage were sitting on more than 50% equity.

Simply put, for enough homeowners to be put in a negative equity situation that would lead them to enter foreclosure and materially damage the market, home prices across the country would have to fall by a percentage greater than we saw during the market crash. And I just don’t see this happening.

The word “recession” has many connotations, and when it’s used to describe the housing market, it can engender a significant level of panic. So, I will ask you all. Given the data I have showed you today, do you think that we are in a housing recession?

Yes, supply levels have risen. But they are still relatively low when compared to historic averages and with builders slowing construction activity to a crawl, it’s unlikely that housing supply will grow much organically. Over the longer term, I believe that the supply of resale homes for sale will remain below historic averages. I say this for one simple reason: mortgage rates.

In 2020, a record number of households refinanced their homes to take advantage of the mortgage rates that had been plummeting. And in 2021, over six million home buyers got mortgages with rates averaging below 3%.

I would suggest to you that we will not see the number of homes for sale even get back to normalized levels in the mid-term, as many potential sellers will decide not to sell, because if they did, they would lose the never seen before and likely never to be seen again mortgage rate that they currently have.

Of course, there will be sellers who have to move because of factors such as job relocation, death, or divorce, but I would contend that listing activity may well be tight for a long time. And if supply remains below the level of demand, the market is further protected.

And as far as demand goes, let’s not forget that the age makeup of the country suggests that we will see a lot more potential buyers as Millennials and Generation Z mature, with current numbers suggesting significant buyer demand for the next two decades.

As for sale prices, I still believe (as do almost all economists) that the median home price next year will be higher than we will see this year, but a very significant drop in the pace of sales growth is likely as we trend down to historic averages.

Of course, all real estate is local and there are markets across the country that will see prices drop in absolute terms. But even in the most highly susceptible markets, it will be a temporary phenomenon. By 2024, homeowners in these markets will see the value of their homes start to rise again.

I’m going to leave you with my quote to describe today’s market today and it’s that we are in a “housing reversion,” NOT a housing recession.

As always, I’d love to hear your comments on my thoughts so feel free to reach out. In the meantime, stay safe out there and I’ll see you all again next month.


1: New York Fed Quarterly Report on Household Debt and Credit

About Matthew Gardner

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.