The housing market could be in a recession, even if the rest of the economy isn't

• Rising inflation and interest rates are discouraging buyer demand.
• Chris Low, the chief economist at FHN Financial, says the housing market may already be in a recession.

The US economy on the whole may not be in a recession yet, but it's possible the housing market is.

Red-hot demand for homes has cooled as rising inflation and interest rates weigh on wallets. It's caused bidding wars to decline, home price growth to slow, and builder confidence to sink.

Chris Low, the chief economist at FHN Financial, says these signs may indicate the housing market is in a recession.

"Housing is a leading indicator of the broad economy," MarketWatch first reported Low saying. "I would say housing is in a recession, and that likely means the rest of the economy will be in a recession soon."

Indeed, the housing market is going through a dynamic shift. Buyers are backing out of more deals and home builders' production volumes are declining. According to survey results from John Burns Real Estate Consulting, the national cancellation rate among homebuilders reached 14.5% this June – the highest rate since April 2020. As the real estate market cools off, it could lead to either one of two things: a correction or a crash.

The former would entail a gradual decline in prices to more sustainable levels, while the latter would result from a rapid decline in prices triggered by widespread panic from homeowners and investors.

However, with more than $9.9 trillion in homeowner equity and strict lending standards, a real estate crash is unlikely to happen — especially the likes of 2008.

"This is not the same market of 2008," Odeta Kushi, First American's deputy chief economist, previously told Insider. "It's no secret the housing market played a central role in the Great Recession, but this market is just fundamentally different in so many ways."

As the housing downturn progresses, Doug Duncan, the chief economist of Fannie Mae, believes a "soft landing" is on the horizon.

"Mortgage rates have ratcheted up dramatically over the past few months, and historically such large movements have ended with a housing slowdown," Duncan said in a statement. "Consequently, we expect home sales, house prices, and mortgage volumes to cool over the next two years."

Home sales and mortgage demand is already cooling. According to the US. Census Bureau, home sales slowed through June to an annual pace of 590,000 units – the lowest rate since April 2020. Data from the Mortgage Bankers Association also shows that mortgage applications have decreased every week in July.

"Increased economic uncertainty and prevalent affordability challenges are dissuading households from entering the market, leading to declining purchase activity that is close to lows last seen at the onset of the pandemic," Joel Kan, the Associate Vice President of Economic and Industry Forecasting at MBA, said in a statement.

Whether or not a possible recession will lead to a correction or a crash is yet to be seen, but with relatively healthy market fundamentals — US homebuyers can take comfort in knowing it won't be as bad as the mid-2000s.