What Does an Economic Slowdown Mean for the Housing Market?

According to a recent poll, more and more Americans are anxious about the prospect of a recession. When the Federal Reserve met and confirmed its strong commitment to reducing inflation, those worries were validated. And in order to accomplish it, they'd use their powers and influence to slow down the economy.

All of this raises a slew of concerns and queries about how it will affect our personal lives, jobs, and the corporate as a whole. And one worry that many Americans have is: How would this affect the real estate market? We're well aware of how previous economic recessions have affected home prices, but what effect would the next recession have on real estate prices and financing a house?

According to Mortgage Specialists: 

“Throughout history, during a recessionary period, interest rates go up at the beginning of the recession. But in order to come out of a recession, interest rates are lowered to stimulate the economy moving forward.”

Here's the evidence. If you look at each recession going all the way back to the early 1980s, here's what happened to mortgage rates (see chart below):

Historically, when the economy slowed down, mortgage rates fell. Fortune.com explains the trend in this way:

“Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over.”

While history doesn't always repeat itself, we may learn from it. While an economic downturn is required to reduce inflation, it hasn't always been a negative event for the housing market. It's typically meant that the expense of financing a home has decreased, which is a good thing.

Bottom Line

Worries about a recession are on the rise. As the economy slows down, lower mortgage rates are expected, according to history. Although no one knows what the future will bring, you may make the best decision for yourself by consulting with a respectable real estate professional to obtain expert guidance on what's going on in the housing market and what that implies for your house purchase aspirations.