Have you heard people talking about a potential recession? How do you think it will affect the real estate market? To help ease your mind, experts are saying that if we do officially enter a recession, it'll be mild and short. The Federal Reserve said in their March meeting:
"While a recession may be on the horizon, it won't be one for the housing market record books like the crash in 2008. What we have to remember is that a recession doesn't always lead to a housing crisis".
Let's look at the historical data of what happened in real estate during previous recessions. The way you know why you shouldn't be afraid of what a recession could mean for the housing market today. To show that home prices don't fall every time there's a recession, it helps it turn to historical data. As the graph titled A recession does not mean falling prices, illustrates looking at recessions going all the way back to 1980, home prices appreciated in four of the last six. So historically, when the economy slows down, it doesn't mean home values will always fall. Most people remember the housing crisis in 2008 and think another recession will be a repeat of what happened to housing then. Today's housing market isn't about to crash because the fundamentals of the market are different than they were in 2008. One of the big reasons why prices fell was because there was a surplus of homes for sale at the same time. 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 simply isn't going to happen.
What a recession really means for the housing market is falling mortgage rates. As you see in the graph titled A recession means falling mortgage rates, historically each time the economy slowed down, mortgage rates rates decreased. This year, mortgage rates have been quite volatile as they've responded to high inflation. The 30-year fixed mortgage rate has been roughly 6-7%, and that's impacted affordability for many potential buyers. If there is a recession, history tells us mortgage rates may fall below that threshold, even though the days of 2-3% are behind us.
