The U.S. economy has seen its fair share of economic downturns. Many of us may recall the Great Recession that lasted from 2007 through 2009. Here is some information from a seasoned real estate agent.
The unemployment rate soared during that period, while home values plummeted. It was difficult to be a homeowner or real estate investor back then.
The housing market is soaring right now. The housing market is still at record levels, with buyer demand soaring.
However, an economic recession could cause some major changes in the housing market. If the economy takes a significant turn for the worse, here’s what might happen.
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The red-hot stock market may finally cool down
Although there are many criteria that define a recession’s severity, the most common is one marked by high unemployment. Stock values can sometimes plummet during recessions. However, that is not always the case. Similar to stock values, home values can also plummet in a recession. However, this will depend on factors such as borrowing rates as well as buyer demand.
It could lead to a drop in prices if the U.S. economy falls into recession territory, as some financial experts warn. However, this is not always a good thing.
According to the National Association of Realtors, home prices rose 15% annually in March. This means that home prices can fall without triggering a crisis situation wherein countless homeowners are left underwater on their mortgages.
Inventory is low and demand is high, which is the main reason why home prices are so high right now. A recession could lead to less demand, especially if mortgage rates continue to rise or remain high. This could lead to lower home prices.
However, unless the housing inventory increases quickly, it’s unlikely that we will see a drastic drop in home prices. Because supply is still so low, the supply of homes available on the market was just two months as of March 31st. This is a significant drop from the normal four- to six month supply in an equalized housing market.
Even a drop in buyer demand, because inventory is so low, shouldn’t lead to a housing market crash. It might actually open the housing market, which could allow financially secure first-time purchasers to have a chance at property ownership, as well as real estate investors, to purchase income properties more affordably.
Are homeowners concerned about a possible recession?
Homeowners have record amounts of equity right now. Even if there is a recession and home prices fall, equity should not be lost.
A near-term recession may actually have minimal impact on home values, given the fact that there is still very little inventory in the housing market. This is something that current property owners can take solace in.