Conclusion
The domestic economy will likely experience more declines in housing, yet this environment is very different from the Great Financial Crisis. The banking sector is better capitalized, we do not see a “Lehman moment” lurking, and homeowners are generally not under water with loan-to-value metrics. The potential risks are the Fed overtightens, consumer incomes fall as the job market weakens, and inflation does not cool as much as the market expects. A slowing housing market could also impact consumer spending through secondary wealth effects.
Jeffrey Roach, PhD, is chief economist at LPL Financial.