It’s the “R” word – an unsavory word known to cause nervousness and PTSD flashbacks of the not-so “Great Recession” of 2008.  It was a recession that was created by a housing market meltdown and caused many to repress the memories of the painful aftereffects.  More than a decade later, we find ourselves in the longest running economic expansion in American history. But eventually the growth will slow or stop.  The term is an “economic slowdown” or recession, defined “as a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in Gross Domestic Product (GDP) in two successive quarters.”  Note that housing crisis is not part of the definition.

How will the next recession affect us?  Well, the good news is, if/when there is a recession it will be different from the 2008 Recession because it will not be created by a subprime mortgage crisis.  Yahoo Finance experts state “if an upcoming recession occurs, it will likely be due to trade policy, a geopolitical crisis, and/or stock market correction but NOT a housing slowdown.”  The stock market has shown recent volatility and certain economic indicators are signaling a possible recession.

If we look at the last five recessions in U.S. history, in three of them (1980, 1981, and 2001) housing prices actually increased. Two of those three, saw prices appreciate faster than the historical average (1980 and 2001). For the two where prices decreased, one of them was less than 2% (1991) and the other was because the housing market caused the recession in the first place (2008).

 

Why won’t this recession be like the last one? Quite frankly, it is because market conditions are not the same as they were in 2008.  This is the biggest indicator that we won’t see a crash like the one a decade ago.   It will more likely resemble the 2001 recession, when the stock market fell almost 25% while housing prices went up 6.6% – almost double historic norms. The same experts who are predicting a recession are also predicting that housing will appreciate for the next five years and sales are also projected to increase in 2020.

 

So, while the level of home price appreciation has decelerated in many areas of the country, the probability of home prices being lower in two years is forecasted to be minimal to low.  Deceleration does not equal depreciation. The amount of appreciation is pretty much determined by what sector/category one falls in because price range matters. Affordable and entry-level housing has the least amount of inventory and the greatest amount of demand.  Rather than an abundance of homes, the nation has a shortage of new home supply.

 

With the forecast on home prices, and looking at historical home prices during other recessions, sitting on the real estate fence may not be the best tactic for the next recession – especially with interest rates predicted to remain historically low through 2020.

 

We hope that this information helps to calm any real estate anxiety you have for an anticipated recession.  Feel free to contact us to discuss further.  Just remember, when you think about the “R” word, flashback to 2001 and NOT 2008!