Does a Recession Foreshadow a Housing Crash?
These days, you cannot turn on the TV without hearing financial prognosticators ring an alarm bell that a recession is around the corner. It kind of makes you shake in your boots, especially if selling or buying a property is on your radar. You are either having flashbacks to the housing crisis of 2008, or you’ve heard about it. And now, you’re paralyzed, wondering should I just stay put??
To allay your fears (paralysis), it is important to look at the historical data and understand that not all recessions look alike. And that a housing crash isn’t necessarily synonymous with a recession. The chart below depicts housing prices during the last 6 recessions.
As you can see, in 4 of the last 6 recessions, housing prices increased, they didn’t drop. But what the heck happened in 2008? There was a toxic combination of a glut of homes for sale and unscrupulous lending practices that lead to a plethora of distressed properties flooding the market. In 2008, many lenders weren’t properly vetting mortgage applicants as well as requiring very little if any down payment at all from the buyers. People were allowed to buy homes they simply could not afford to own, creating all the distressed properties that entered the already saturated market. Lessons were learned from the crash of 2008 and lending practices have been greatly revamped since. Today’s real estate climate and lending practices are NOT like those of 2008. A housing crash just doesn’t seem logical.
What Impact Could a Recession Have on the Housing Market?
Ah, this is good, lower interest rates. As you know, we have been dealing with inflation, and what have the Feds been doing to counter this? Increasing interest rates to slow down the economy, 10 times in a row to date. And when the Feds slow it down to where we enter a recession, the Feds then want to stimulate the economy by lowering interest rates. Look at the chart below.
The Bottom Line:
It is still a Seller’s Market; therefore, it is a great time to list your house due to a lack of competition. If you are a Buyer, continue your pursuit to purchase a house because historically, prices continue to rise. And if we do hit a recession, the housing market typically does not crash, and interest rates tend to go down. Though, just don’t count on the return of the 3% interest rates; those rates will likely be known as an anomaly just like the 2008 housing crash.
By Karen Alsheimer, Realtor®
