Why the Economy Will Not Destroy the Housing Market

You are not alone in being concerned about a possible recession. There has been a lot of recession talk in recent years. Many people are concerned that if we do have one, the unemployment rate will skyrocket. Some even fear that an increase in unemployment will result in a wave of foreclosures similar to what occurred 15 years ago.

However, the latest Economic Forecasting Survey from the Wall Street Journal (WSJ) reveals that, for the first time in over a year, less than half (48%) of economists believe a recession will actually occur within the next year:

“Economists are turning optimistic on the U.S. economy . . . economists lowered the probability of a recession within the next year, from 54% on average in July to a more optimistic 48%. That is the first time they have put the probability below 50% since the middle of last year.”

If more than half of experts no longer expect a recession within the next year, you would think those same experts also do not expect the unemployment rate to skyrocket - and you would be correct. The graph below uses data from that same WSJ survey to show exactly what the economists project for the unemployment rate over the next three years (see graph below):


If the predictions of experts are correct, more people will lose their jobs in the coming year. And job losses of any kind are devastating for those people and their loved ones.

However, the question here is: will there be enough job losses to cause a wave of foreclosures that will crash the housing market? Based on historical context from Macrotrends and the Bureau of Labor Statistics (BLS), the answer is no. That’s because the unemployment rate is currently near all-time lows (see graph below):


The red bar shows that the average unemployment rate reached 8.3% the last time the housing market crashed, in the immediate aftermath of the 2008 financial crisis. The red bar shows that the last time the housing market crashed in the immediate aftermath of the 2008 financial crisis, the average unemployment rate was up to 8.3%. Both of those bars are much higher than the unemployment rate today (shown in the blue bar).

Moving forward, projections show the unemployment rate is likely to stay beneath the 75-year average. And that means we won’t see a wave of foreclosures that would severely impact the housing market.

Bottom Line

Most economists no longer anticipate a recession in the next 12 months. That is why they do not anticipate a sharp increase in the unemployment rate, which would result in a flood of foreclosures and another housing market crash. If you have questions about unemployment and its impact on the housing market, let’s connect.

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