What We Can Learn from Past Recessions and the State of the Current Housing Market

It doesn’t matter if you’re someone who closely follows the economy or not. Chances are you’ve heard whispers of an upcoming recession. A broad range of factors determines economic conditions, 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 recession in 2023 . . .”

As talk about a potential recession grows, you may wonder what a 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 recession could mean for the housing market today.

A 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. As the graph below illustrates, looking at recessions going back to 1980, home prices appreciated in four of the last six. So historically, it doesn’t mean home values will always fall when the economy slows down.

Most people remember the housing crisis in 2008 (the larger of the two red bars in the graph above) and think another recession would repeat what happened to housing then. But today’s housing market isn’t about to crash because the market fundamentals are different from those 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 and not fall as 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, mortgage rates decreased each time the economy slowed down.

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. Experts say a recession would be mild, and housing would play a vital 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 the global economy over a 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 

While history doesn’t always repeat, we can learn from the past. According to historical data, home values have appreciated in most recessions, and mortgage rates have declined.

If you’re considering 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.

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