What Would a Recession Mean for the Housing Market?
According to a recent survey conducted by the Wall Street Journal, the proportion of economists who think we'll have a recession in the next year is on the rise. Only 12% of economists questioned in July 2021 believed there would be a recession already. But when polled this July, 49% percent of respondents thought we'd see one in the following year.
As more people voice their concerns about an impending recession, one common question is: should I delay my homeownership plans if there’s a recession?
For those of you who are worried about what a recession might do to the housing market, here is some data from past recessions to show that there is no need to be afraid.
A Recession Doesn’t Mean Falling Home Prices
It's beneficial to utilize historical data to establish that home values don't drop every time there is a recession. Looking at the recession dating back to 1980, as shown in the graph below, four of the last six downturns have resulted in increases in house prices. So, historically speaking, when the economy slows down, home prices do not inevitably plummet.
Most people recall the 2008 housing crisis (the larger of the two red bars in the graph above) and believe another recession would produce the same result. However, this housing market isn't about to collapse. Today's fundamentals are vastly different from those seen in 2008. So don't make a mistake by assuming we'll go down the same path again.
A Recession Means Falling Mortgage Rates
Research also helps define how a recession could change the affordability of financing a home. For example, as the chart below indicates, past economic slowdowns have been linked with decreased mortgage rates.
Fortune explains that mortgage rates typically fall during an economic slowdown:
“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.”
Although the past doesn't always dictate the future, we can find comfort and learn lessons from what has come before.
The housing market crash in 2008 is still at the forefront of many people's minds. However, if you're planning to buy or sell a house, there's no need to be anxious about an economic recession. According to data, during past recessions, home prices have generally remained stable and mortgage rates have decreased.
When you're ready to buy or sell a house, connect with The Perreault Group. We offer advice based on the current housing market and what that means for your homeownership goals.