What Would a Recession Mean for the Housing Market?

The number of economists who predict a recession within the next 12 months is rising, according to a new Wall Street Journal study. Only 12% of the analysts polled in July 2021 predicted a recession by this point. However, 49% of those surveyed in July think a recession will occur in the next 12 months.

As the possibility of a recession becomes more prevalent, many people are concerned that they should postpone their plans to become homeowners.

In order to demonstrate why you shouldn't be concerned about what a recession might mean for the housing market today, let's take a look at historical data that illustrates what happened in real estate during previous recessions.

Falling housing costs are not a sign of a recession.

It helps to look at historical data to demonstrate that home prices don't always decrease during recessions. Home prices increased in four of the most recent six recessions, as shown in the graph below, which shows the recessions going all the way back to 1980. Therefore, historically, a slowing economy has not resulted in a decline in property values.

What Would a Recession Mean for the Housing Market? | Simplifying The Market

The majority of individuals believe that another recession will mirror what occurred during the housing crisis of 2008 (the greater of the two red bands in the graph above). However, a crash in the property market is not imminent. Today's principles are considerably different from those of 2008. So don't assume that we are going in the same direction.

A Recession Means Falling Mortgage Rates

Research also contributes to the understanding of how a recession might affect the cost of mortgage finance. According to the data below, historically, mortgage rates fell whenever the economy slowed down.

What Would a Recession Mean for the Housing Market? | Simplifying The Market

According to Fortune, mortgage rates often decrease when the economy is slowing down:

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.”

Even while history doesn't always repeat itself, we can nevertheless draw comfort and lessons from it.

To sum up

Everyone is aware of what transpired in the property market in 2008. If you're intending to buy or sell a home, though, you don't need to be concerned about the word recession. Historical data shows that during most recessions, home price increases have remained steady and mortgage rates have decreased.

Let's connect if you're considering buying or selling a house so you can get professional guidance on what's going on in the housing market and what that implies for your homeownership aspirations.

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