US Housing Market Is Tanking, Banking Fiasco Darkens Outlook: Friedman

• The US housing market has slowed dramatically over the past year, RH CEO Gary Friedman said.
• Soaring interest rates have hit housing demand, and the banking fiasco is a fresh blow, he said.
• Friedman said the outlook is less clear now than in 2008, and he urged the Fed not to tank the economy.

The US housing market is suffering a major downturn as historic inflation, surging interest rates,and banking-sector turmoil rattle the wider economy, RH CEO Gary Friedman has warned.

“It’s not rocket science to know this is a really bad time,” he said on the luxury-furniture retailer’s fourth-quarter earnings call, according to a transcript provided by AlphaSense/Sentieo.

“The fact is, we’ve been in a massive housing recession for the past year,” Friedman continued, adding that “accelerating weakness” in the sector could weigh on his company’s revenue and profits for several quarters.

The executive pointed to a recent Redfin report showing that luxury home sales slumped 45% year-on-year in the three months ending January 31, while non-luxury home sales dropped by a record 38%.

Moreover, he flagged a Mortgage Bankers Association survey that found home-purchase applications plunged 42% year-on-year in the week ending March 3, and refinancing activity dropped by 76%.

“The data points to business in our sector likely getting worse before it gets better,” Friedman said, pointing to pressure on stocks and banks as additional headwinds.

The RH boss said he was worried about three US banks folding earlier this month. He also expressed concern that a consortium of Wall Street banks deposited $30 billion in First Republic to shore up the embattled lender’s balance sheet and stave off another bank run.

“I’ve been on the planet for long enough to know this is not normal, and this is dangerous,” he said.

Friedman warned the economic outlook is more uncertain today than in 2008 and 2009, after the housing bubble burst and the Great Recession took hold. He noted there wasn’t an inflation problem or as much political unrest back then.

The business leader also urged the Federal Reserve — which has hiked interest rates from nearly zero to upwards of 4.75% over the past year to crush inflation — not to strangle the economy.

Higher rates can ease upward pressure on prices by making borrowing more costly and encouraging saving over spending. But they can also erode demand, pulling down asset prices and raising the risk of a recession.

“Just land the plane on the other side, whether it’s hard, whether it’s bumpy,” Friedman said. “Just don’t completely crash. A complete crash would look like the ’70s and the ’80s. That will take over a decade to recover from.”

Several experts have sounded the alarm on the housing market and economy. David Rosenberg, the president of Rosenberg Research, told Insider in February that he expects house prices to slump by 15% to 20%, and a recession to take hold.

Meanwhile, Wharton professor Jeremy Siegel cautioned earlier this month that house prices could fall 15% from their peak, and warned this week that the risk of the recession has increased.