Are you nervous that a possible recession will damage property prices?
Don’t be. History shows that recessions often have a positive impact on home prices.
- First, economists and real-estate experts believe that any recession in the next year or two will be mild and short, and will recover within two years from onset.
- They also cite that an economic recession does not mean falling home prices! See the diagram that shows after the last six recessions, home prices actually rose in four of those years! The 1991 recession saw only a mild decline of 1.9 percent in prices. The only truly damaging year: The Great Recession of 2008, which saw homes decline nearly 20 percent nationally. However, that recession was directly caused by terribly lax lending practices around sub-prime mortgages. Anyone with a pulse qualified for a loan. Buyers with terrible or no credit history, even with no jobs, were granted mortgages, inevitably leading to short sales and foreclosures.
Today’s Market Shift – moving more in favor of buyers – is entirely different. Home prices may be coming down, but only slightly from all-time highs set during the pandemic years. Unlike the Great Depression, today’s market is marked by homes still in critically short supply, keeping prices high despite the rise in interest rates (caused by the Feds attempts to curtail inflation). There is no quick fix to this home shortage.
After looking at historical data, which shows what happened to real estate during previous recessions, you shouldn’t fear that a recession would mean plummeting housing prices today. In today’s local market, home inventory hovers at an extremely low 2 percent, keeping homes in demand and prices from falling – even with the rise in interest rates. Home inventory in a balanced market between home sellers and buyers, inventory is a 6 percent! Today’s home inventory is no were near even a balanced market, let alone a home surplus.
Back in the Great Recession of 2008, prices fell because a large surplus of homes for sale existed at the same time distressed properties flooded the market. Today, the number of homes for sale is low, so while home prices may see slight declines in some areas and slight gains in others, a crash simply isn’t in the cards.
What a recession really delivers to the housing market: Falling mortgage rates, making homes more affordable. As the graph above shows. Historically, each time the economy slowed, the Fed indirectly decreased mortgage rates, making homes more appealing.
This year, mortgage rates have been quite volatile as they’ve responded to high inflation. The 30-year fixed-rate mortgage has hovered between roughly 6-7 percent, negatively impacting affordability for many potential homebuyers.