The one thing every homeowner these days needs to realize is that a recession does not equal a housing crisis. With the long ongoing trend of increasing home prices, lower mortgage rates, slim inventory and general inflation some experts are warning that we could be heading towards a recession but if true, this economic slowdown does not mean homes will lose value.
The National Bureau of Economic Research defines a recession as: “A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.”
To help explain how home prices are not always affected during recessions we can look at some historical data. There have been six recessions in the United States in the past 40 years. During recessions in 1980, 1981, 2001 and 2020 homes had actually appreciated while only in 1991 and 2008 did they depreciate. During the recession of the early 1990’s home prices only dropped by less than 2% which was quite trivial. Perhaps people more vividly remember the recession of 2008 and feel that this same thing may happen again. However, that market was very different by comparison to things today. First, lenders created fake demand by loosening up necessary qualifications for mortgages where many obtained them when they shouldn't have. Also, many homeowners were using their homes like personal ATM’s and pulling out all of their equity to purchase high priced items like cars, boats or second homes. When prices started dropping they found themselves upside down leading to foreclosures. This large amount of foreclosures only fueled the decline of home prices.
In the end if you examine the data, if we are heading towards a recession the history proves that it does not equal a housing crisis.
