Recession talk is all over the news, and the odds of a recession are rising this year. And that leaves people wondering what would happen to the housing market if we do go into a recession.
Let’s take a look at some historical data to show what’s happened in housing for each recession going all the way back to the 1980s.
A Recession Doesn’t Mean Home Prices Will Fall
Many people think that if a recession hits, home prices will fall like they did in 2008. But that was an exception, not the rule. It was the only time we saw such a steep drop in prices. And it hasn’t happened since.
In fact, according to data from CoreLogic, in four of the last six recessions, home prices actually went up (see graph below):
So, if you’re thinking about buying or selling a home, don’t assume a recession will lead to a crash in home prices. The data simply doesn’t support that idea. Instead, home prices usually follow whatever trajectory they’re already on. And right now, nationally, home prices are still rising at a more normal pace.
Mortgage Rates Typically Decline During Recessions
While home prices tend to stay on their current path, mortgage rates usually drop during economic slowdowns. Again, looking at data from the last six recessions, mortgage rates fell each time (see graph below):
So, a recession means mortgage rates could decline based on the data. While that would help with affordability, don’t expect the return of a 3% rate.
Bottom Line
The answer to the recession question is still unknown, but the odds have gone up. But that doesn’t mean you have to wonder about the impact on the housing market – historical data tells us what usually happens. In conclusion, a recession can have significant and multifaceted effects on the housing market, with outcomes varying depending on the duration and severity of the downturn. Generally, recessions tend to lead to reduced consumer confidence and purchasing power, causing a slowdown in home sales. This is often coupled with rising unemployment rates, which further dampen demand for new homes as potential buyers struggle to secure financing. On the supply side, homebuilders may scale back construction due to economic uncertainty, leading to a potential shortage of new homes in the long run.
However, not all recessions have the same impact on housing. For example, if interest rates remain low despite economic turmoil, some buyers may still be motivated to enter the market, especially if home prices stabilize or decline. Additionally, in certain scenarios, a recession could create more affordable housing options for first-time buyers or those looking to upgrade.
Ultimately, the specific effects of a recession on the housing market will depend on a variety of factors, including government policies, interest rates, and broader economic conditions. While some areas may experience price declines and slower sales, others may see more modest adjustments. For both buyers and sellers, staying informed and being prepared for market fluctuations will be key to navigating the potential challenges a recession brings to the housing market.
When you hear talk about a possible recession, what concerns or questions come to mind about buying or selling a home? Let’s connect!
