What Past Recessions Tell Us About the Housing Market

It doesn’t matter if you are one who follows the economy carefully. You’ve probably heard rumors of an impending recession. Economic conditions are determined by many factors. So rather than spell them out, we’re relying on experts and history to see what’s in store.Bankrate chief his financial his analyst Greg McBride said:

“Two-in-three economists are forecasting a recession in 2023 . . .”

As talk of a possible recession comes up, you may be wondering what a recession means for the housing market. Let’s take a look at historical data showing what happened in previous housing recessions and prove why you shouldn’t fear what a recession means for today’s housing market.

A Recession Doesn’t Mean Falling Home Prices

To show that house prices don’t fall every recession, it helps to look at historical data. As the graph below shows, house prices rose in four of the last six recessions dating back to the 1980s. So just because the economy is historically slowing doesn’t mean asset values ​​will always fall.

Most people remember the 2008 housing crisis (the larger of the two red bars in the chart above) and believe that another recession will be a repeat of what happened to housing then. But the market fundamentals are different than he was in 2008, so it’s not like the real estate market is about to collapse today. Real estate prices will vary by market and will go up and down in different regions, experts say. However, the 2023 forecast average indicates that prices will remain net neutral nationwide and will not fall as significantly as they did in 2008.

A Recession Means Falling Mortgage Rates:

The study also helps paint a picture of how a recession will affect housing financing costs. As the chart below shows, historically, mortgage rates have fallen each time the economy has slowed.

Fortune explains mortgage rates typically fall during an economic slowdown:

“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.”

Mortgage rates are likely to stabilize below last year’s peak in 2023, according to market experts. This is because mortgage interest rates tend to respond to inflation, and the first sign is that inflation is slowly calming down.

If inflation eases further, interest rates could fall further, but the 3% era is probably past.The big advantage is that you don’t have to fear the word recession when it comes to housing.

In fact, experts say the recession will be mild and housing construction will play a key role in the economy’s rapid recovery. KPMG CEO Outlook 2022 said:

“Global CEOs see a ‘mild and short’ recession, yet optimistic about global economy over 3-year horizon . . .

 More than 8 out of 10 anticipate a recession over the next 12 months, with more than half expecting it to be mild and short.”

Bottom Line 

History doesn’t always repeat itself, but we can learn from the past. Historical data show that most recessions have seen home prices rise and mortgage rates fall.

If you’re looking to buy or sell a home this year, contact us to get expert advice on what’s happening in the housing market and what it means for your homeownership goals.

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