How A Recession Will Affect You As A Homeowner
Let's talk about the possibility of a recession and what that means for you as a homeowner. Now, I’m not going to get into the debate of whether or not we’re actually going to see a recession. Opinion is still divided among experts; many economists warn of a recession while others say the fear is overblown. But let’s take a look at how recessions have impacted the housing market in the past.
A recession does not equal a housing crisis. That’s the one thing that every homeowner today needs to know. Everywhere you look, experts are warning we could be heading toward a recession, and if true, an economic slowdown doesn’t mean homes will lose value.
The National Bureau of Economic Research (NBER) defines a recession as a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.”
There have been six recessions in this country over the past four decades. As the graph below shows, looking at the recessions going all the way back to the 1980s, home prices appreciated four times and depreciated only two times. So, historically, there’s proof that when the economy slows down, it doesn’t mean home values will automatically fall or depreciate.
The first occasion on the graph when home values depreciated was in the early 1990s when home prices dropped by less than 2%. It happened again during the housing crisis in 2008 when home values declined by almost 20%. Most people vividly remember the housing crisis in 2008 and think if we were to fall into a recession we’d repeat what happened then. But this housing market isn’t a bubble that’s about to burst. The fundamentals are very different today than they were in 2008. So, we shouldn’t assume we’re heading down the same path.
Bottom line, the US is not yet in a recession, but if one is coming, it doesn’t mean that homes will lose value. And like I always say, no one has a crystal ball to know for sure, but history proves that a rescission doesn’t equal a housing crisis. In fact, most experts anticipate that homes will continue to grow in value, just at a slower pace than what we’ve seen over the last 18 months. If you’re curious about what your home is worth, let us know.
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