The Growing Concern: What Would a Recession Mean for the Housing Market?

Economic discussions have recently been marked by growing apprehensions of an impending recession, with 49% of economists surveyed this July believing that we will witness a recession within the next 12 months—a significant shift from the mere 12% reported in July 2021.

As recession talk gains traction, a common question arises: should homeownership plans be put on hold during uncertain economic times? Delving into historical data and the real estate landscape during previous recessions unveils insights that debunk fears surrounding the housing market's response to economic downturns.

Contrary to popular belief, a recession does not necessarily entail a decline in home prices. Scrutinizing historical data spanning back to 1980 reveals that home prices appreciated during four out of the last six recessions. This underscores the fact that a slowdown in the economy does not inherently translate to diminishing home values.

While the housing crisis of 2008—depicted by the larger red bar in the graph—lingers in collective memory, it's essential to recognize that the current housing market holds distinctive attributes. Unlike 2008, this market isn't poised for a crash. Fundamentals today markedly differ from those of the past, debunking assumptions of a repeat scenario.

Additionally, a recession can often herald falling mortgage rates. Research paints a clear picture of how economic downturns historically impact the cost of home financing. Examining the chart below reveals that mortgage rates have typically decreased in correlation with economic slowdowns.

Fortune sheds light on this phenomenon by explaining that mortgage rates tend to decrease during economic downturns:

"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."

While history's patterns don't bind the present, they provide valuable insights and a sense of reassurance. By delving into historical data, we can glean lessons from the past and find solace in the understanding that a recession doesn't necessarily foretell a housing market downturn.

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