How Will A Recession Affect The Real Estate Market

How will a recession affect the local real estate market? I examine this question by analyzing the market conditions of previous recessions in U.S. history.

Given the current media buzz of an impending recession, many Americans are fearing the worst and believe a downturn in the real estate market is inevitable.

Doubts about the market’s stability are completely rational considering the loss many agents and home buyers took when everything went belly-up in 2008.

I’m here to tell you this: don’t panic

In this post I will explain how an upcoming recession does not spell disaster for the real state market.

Recession Does Not Equal Housing Crisis

Memories of the 2008 crash are still fresh in the memories of people across the country. This was a disastrous period for many families. These memories are so fresh for some that imagining a recession that doesn’t lead to similar results can be very difficult. What we may not be remembering is that there were many economic downturns that resulted in appreciated home values.

Of the last five recessions in U.S. history, three of them saw increases. Two of those three saw prices appreciate faster than the historical average.

For the two recessions where prices decreased, one of them (1991) was by less than 2% and the other (2008) was because the housing market caused the recession in the first place. This is a key point when analyzing the upcoming recession. Historically, recessions are not caused by housing alone.

Market Condition Are Not The Same As In 2008

The biggest indicator that we won’t see a crash like the one a decade ago is that the market conditions simply aren’t the same. Home prices are projected to appreciate for the next 2-5 years. Sales are also projected to increase in 2020.

The local housing market has remained strong and is projected to continue moving forward.

What Is A Recession?

According to Webster’s Dictionary, a recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP for two successive quarters.

To simplify it, a recession means a time when the economy takes a dip for at least six months. We’re currently in the longest running economic recovery in American history. What ends a recovery? A slowdown.

This doesn’t mean that we need to brace for a repeat of 2008.

What Will Cause The Next Recession?

If a recession occurs, there will be many factors contributing to it including trade war, stock market, geopolitical crisis and stock market correction but NOT a housing slowdown, according to Yahoo Finance.

“This is going to be a much shorter recession than the last one. I don’t think the next recession will be a repeat of 2008…the housing market is in a better position,” said George Ratiu, Senior Economist for Realtor.com”

The upcoming election along with current trade wars may be the defining factors that ends what has been the longest running economic expansion in U.S. history. But a slowdown by no means indicates a hit like the Great Recession.

What The General Public Believes About A Recession

According to a Realtor.com survey, 53% of consumer currently looking for home think a recession will come in the next 15 months. Worse than that, 55% of consumers surveyed said they would temporarily suspend their home search.

“You’re gonna have sellers that were ready to put the house on the market all of a sudden call and say we’re gonna wait a year or two. Those families are getting hurt because they’re making decisions, not on reality, but their perception of reality.”

In a study by Realtor.com 57% of people believe that a recession will be the same or worse than the 2008 economic recession. As I have explained earlier in this post, the market conditions are simply not the same and so the outcome should also be different.

Final Thoughts

The next recession will not duplicate the one we experienced in 2008 but if the public perception remains the same, things could be much worse than they really need to be. Individuals could be hurt by mistakes made under the pretense of false information.

That is why it is so important that as real estate professional and the trusted advisor, I need to reclaim the narrative and eliminate this fear from the market.

I encourage you to research this information and ask questions. Your home is likely to be the single largest investment you have and protecting it is incredibly important. I am happy to discuss this topic or answer any questions you may have.

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