Does A Recession Mean The Housing Market Will Crash?
There is a growing concern that there will be a recession in the next 12 months, according to a recent survey from the Wall Street Journal. The Number of Economists who believe this has increased from 12% to 49% last July to this July. That’s a pretty significant increase. And as this concern grows, some people are asking if they should delay their plans to buy or sell if there is a recession.
Ultimately, that answer lies in your specific circumstances- regardless of what’s going on in the economy. But let’s face it, moving isn’t always a choice that’s driven by economic conditions or waiting until the “right time.” Sometimes it’s a new job, a baby on the way, an aging family member, or a better school district. Regardless of the reason, let’s take a look at some historical data that shows how real estate has been impacted by previous recessions. This will hopefully help put your mind at ease about what this means for today’s housing market.
First, what’s the greatest predictor of the future? The past! So let’s take a look at what historical data shows us on what happens to the housing market during a recession.
So let’s take a look at home prices during the last six recessions. As the graph below illustrates, going all the way back to 1980, believe it or not, home prices actually appreciated in four of the last six recessions. So, historically, when the economy slows down, it doesn’t mean home values will fall.
Another more favorable by-product of a recession may be falling interest rates. Research indicates a recession could impact the cost of financing a home. As this graph shows, historically, mortgage rates have decreased each time the economy slowed down.
Fortune explains that “Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak to its lowest point during the recession. 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.”
Bottom line, while history doesn’t always repeat itself, it is a good indicator that we can learn from and find comfort in. No one welcomes a recession, of course, but if you do plan to buy or sell a home, you don’t need to fear the word “recession” as it relates to the real estate market.