The collapse threatens spillover effects in these key industries

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With home sales dropping to their lowest level in years, a string of industries linked to the housing market are beginning to show signs of deteriorating, with home builders, appliance makers and some retailers likely to take the biggest hit as experts fear the economic downturn. It could lead to a wider recession.

key facts

On Tuesday ReportBank of America noted that the rate of telegraphic payments to escrow and title companies — which are typically used to pay deposits for home sales — fell this year for the first time since the Covid recession in mid-2020, according to consumer spending data, adding to growing signs of a slowing market. housing.

Perhaps the greatest influence was the home builders, who were in August announce The nation has plunged into a “housing slump” and has seen shares tumble more than 30% this year, according to the S&P Homebuilders Select Industry Index, which includes home manufacturing giants such as Masco and Owens Corning. The broader S&P 500 is down 24%.

Bank of America notes that the slowdown may also be a drag on consumer spending due to the impact on housing-related sectors, most notably furniture spending, which has a “historically close” relationship to home sales and has already fallen more than 10% over the year. general.

In previous housing cycles, including the crash that triggered the Great Recession more than a decade ago, spending on furniture didn’t bottom out until a few months after home sales occurred, so Bank of America notes that further weakness remains In the future.

Other companies vulnerable to the decline include device makers, home entertainment companies and consumer electronics companies, including Best Buy, whose CEO last year cited the housing boom as a the reason For better-than-expected sales of items such as televisions and home theater devices.

Analysts are not yet convinced that the housing-related fallout alone will lead to a recession, but the impact could be significant: Harvard researchers said estimated Market effects accounted for at least a quarter of the growth in personal consumption expenditures, which accounts for 70% of the state’s GDP.

Amazing fact

Despite a surge in overall retail sales in August, demand for items such as furniture and electronics fell nearly 2% and 6% year-on-year — the only negative annual changes among business types tracked by the Commerce Department, according to another data.

Contra

The only housing-related industry in which more consumers say they will spend more — rather than less — is home improvement, notes Bank of America. On Monday, R5 Capital analyst Scott Mushkin downgraded Lowe’s rating and said the risks to the housing market were “too high” for him to recommend investors to buy the stock, but other analysts, including Sam Hudson of Atlantic Equities, noted that the post-equity environment Covid bodes well for home improvement companies, especially as fewer Americans buying homes may mean more people are more likely to invest in their existing properties.

main background

The housing market remains one of the sectors hardest hit by the interest rate hike by the Federal Reserve, and fears that deflation could trigger an economic recession have intensified as a result. With mortgage applications drop To its lowest level since 1997, some analysts expect lower demand to correct home prices. On Tuesday, the International Monetary Fund He said The “potential contagion effect” of such a correction would likely be “more limited than in previous recessions,” but she did note that risks are emerging elsewhere in the housing sector, particularly in the United States, where more companies are starting to play a role. in the mortgage market.

in-depth reading

Mortgage rates drop for first time in 6 weeks – but housing market downturn could last for several years, warns Wells Fargo (Forbes)

Experts have predicted the housing market crash will slash home prices by 20% in major markets like Dallas and Los Angeles (Forbes)

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