There is a lot of discussion about a possible economic downturn in the news and media these days. If you are considering buying or selling a house, you may be concerned about whether this is a good decision in light of the current situation. However, many professionals are suggesting that even if there is a recession, it will likely be brief and not too severe. This view is supported by the Federal Reserve, who shared their perspective on the matter during their March meeting.
“. . . the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
While a recession may be on the horizon, it won’t be one for the housing market record books like the crash in 2008. What we have to remember is that a recession doesn’t always lead to a housing crisis.
In order to demonstrate that a potential recession shouldn’t be a cause for concern in the real estate market, we can examine the historical data from past economic downturns. By doing so, we can gain a better understanding of how the housing market has been impacted in the past, and why there is no reason to fear the effects of a recession on the housing market at present.
A Recession Doesn’t Mean Falling Home Prices
To demonstrate that home prices are not necessarily impacted negatively by every recession, it can be useful to examine historical trends. By looking at a graph that shows recessions dating back to 1980, we can see that home prices actually increased during four out of the six previous economic downturns. This evidence indicates that a recession does not necessarily result in a decline in home values and that such trends can vary depending on various factors.
The housing crisis of 2008 is still fresh in many people’s minds, and some may worry that a potential recession could result in a similar downturn in the housing market. However, it’s important to note that the current housing market is different from what it was in 2008, and a crash is unlikely to occur. During the 2008 crisis, an oversupply of homes for sale and a flood of distressed properties led to a sharp drop in prices. In contrast, the current housing market has a low inventory of homes for sale, so while price fluctuations may occur, a significant crash is unlikely.
A Recession Means Falling Mortgage Rates
The impact of a recession on the housing market typically results in falling mortgage rates, as historical trends show. As illustrated by a graph, in the past, whenever the economy has slowed down, mortgage rates have tended to decrease.
Bankrate explains mortgage rates typically fall during an economic slowdown:
“During a traditional recession, the Fed will usually lower interest rates. This creates an incentive for people to spend money and stimulate the economy. It also typically leads to more affordable mortgage rates, which leads to more opportunity for homebuyers.”
This year, mortgage rates have been fluctuating due to high inflation, and have ranged from 6-7% for 30-year fixed mortgages. As a result, many potential homebuyers have been impacted by reduced affordability. However, if a recession were to occur, past trends indicate that mortgage rates may fall below that threshold, although rates as low as 3% are no longer expected.
Final Thoughts
You don’t need to fear what a recession means for the housing market. If we do have a recession, experts say it will be mild and short, and history shows it also means mortgage rates go down.
Find out why Kaya Homes is the leader in Long Island Real Estate and are your go-to realtor in the Lynbrook, Oceanside, Malverne, Hewlett, Valley Stream, East Rockaway, Woodmere, Cedarhurst, Baldwin, North Woodmere, Woodsburgh, Hewlett Neck Hewlett Harbor, Bellmore,Wantagh,Merrick and Freeport area. www.kayahomesny.com
Fri, 05 May 2023 06:59:44 +0000
by Mottek Group