A Recession Doesn’t Equal a Housing Crisis.

Everywhere you look, people are talking about a potential recession. And if you’re planning to buy or sell a house, this may leave you wondering if your plans are still a wise move. To help ease your mind, experts say that if we officially enter a recession, it’ll be mild and short. As the Federal Reserve explained in their March meeting:

“. . . the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”

While a recession may be on the horizon, it won’t be one for the housing market record books like the crash in 2008. We must remember that a recession doesn’t always lead to a housing crisis.

To prove it, let’s look at the historical data of real estate events during previous recessions. That way, you know why you shouldn’t fear what a recession could mean for today’s housing market.  

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 from 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.

A Recession Does Not Mean Falling Prices - KM Realty Chicago Data

Most people remember the housing crisis 2008 (the larger of the two red bars in the graph above) and think another recession will repeat what happened to the houses then. But today’s housing market isn’t about to crash because its fundamentals differ from 2008.

Back then, one of the big reasons why prices fell was because there was a surplus of homes for sale. At the same time, distressed properties flooded the market.

Today, the number of homes for sale is low, so while home prices may see slight declines in some areas and slight gains in others, a crash isn’t in the cards. 

A Recession Means Falling Mortgage Rates.

Falling mortgage rates mean a recession for the housing market. As the graph below shows, historically, mortgage rates have decreased each time the economy slowed down.

A Recession Mean Falling Mortgage Rates - KM Realty Chicago Data

Bankrate explains mortgage rates typically fall during an economic slowdown:

“During a traditional recession, the Fed will usually lower interest rates. This creates an incentive for people to spend money and stimulate the economy. It also typically leads to more affordable mortgage rates, which leads to more opportunity for homebuyers.”

Mortgage Rates have been quite volatile this year as they’ve responded to high inflation. The 30-year fixed mortgage rate has hovered between roughly 6% and 7%, impacting affordability for many potential homebuyers. 

But, if there is a recession, history tells us mortgage rates may fall below that threshold, even though the days of 3% are behind us.

Bottom Line.

You don’t need to fear what a recession means for the housing market. If we do have a recession, experts say it will be mild and short, and history shows it also means mortgage rates go down.

To learn more about this topic, contact real estate experts near you at KM Realty Group LLC, Chicago.