Real Estate Recession? What Past Recessions Tell Us About the Housing Market
Welcome to our blog where today we’ll be discussing what to expect during a real estate recession. If you’re looking for the best up-to-the-minute real estate material, you’ve landed in the right place! It doesn’t matter if you’re someone who closely follows the economy or not, chances are you’ve heard whispers of an upcoming real estate recession. Economic conditions are determined by a broad range of factors, so rather than explaining each in-depth, let’s lean on the experts and what history tells us to see what could lie ahead. As Greg McBride, Chief Financial Analyst at Bankrate, says:
“Two-in-three economists are forecasting a real estate recession in 2023 . . .”
As talk about a potential recession grows, you may be wondering what a real estate recession could mean for the housing market. Here’s a look at the historical data to show what happened in real estate during previous recessions to help prove why you shouldn’t be afraid of what a real estate recession could mean for the housing market today.
A Real Estate Recession Doesn’t Mean Falling Home Prices
To show that home prices don’t fall every time there’s a recession, it helps to turn to historical data. The Real Estate Market During a Recession may surprise you. As the graph below illustrates, looking at recessions going all the way back to 1980, home prices appreciated in four of the last six of them. So historically, when the economy slows down, it doesn’t mean home values will always fall.
Most people remember the housing crisis in 2008 (the larger of the two red bars in the graph above) and think another real estate recession would be a repeat of what happened to housing then. But today’s housing market isn’t about to crash because the fundamentals of the market are different than they were in 2008. According to experts, home prices will vary by market and may go up or down depending on the local area. But the average of their 2023 forecasts shows prices will net neutral nationwide, not fall drastically as they did in 2008.
A Recession Means Falling Mortgage Rates
Research also helps paint the picture of how a recession could impact the cost of financing a home. As the graph below shows, historically, each time the economy slowed down, mortgage rates decreased.
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.”
In 2023, market experts say mortgage rates will likely stabilize below the peak we saw last year. That’s because mortgage rates tend to respond to inflation. And early signs show inflation is starting to cool. If inflation continues to ease, rates may fall a bit more, but the days of 3% are likely behind us.
The big takeaway is you don’t need to fear the word recession when it comes to housing. In fact, experts say a real estate recession would be mild and housing would play a key role in a quick economic rebound. As the 2022 CEO Outlook from KPMG, says:
“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 – Real Estate Recession
While history doesn’t always repeat itself, we can learn from the past. As we’ve discussed, The Real Estate Market During a Recession can be very healthy. According to historical data, in most real estate recessions, home values have appreciated and mortgage rates have declined.
If you’re thinking about buying or selling a home this year, let’s connect so you have expert advice on what’s happening in the housing market and what that means for your homeownership goals.
Here are Some of Our Previous Topics…
- Here’s What You Can Expect from the Housing Market in 2023
- Applying for a Mortgage? What to AVOID
- What does the Homebuying Process Look Like in 2023?