How Would a Recession Impact Home Value? The Silver Lining for Buyers (2024)

How Would a Recession Impact Home Value? The Silver Lining for Buyers (1)

It’s a tough question that’s been nibbling at the back of the minds of homeowners, prospective buyers, and investors for over a year now—how would a recession impact home values?

Recent headlines highlight volatile markets and the ripple effects of global events, including multiple interest rate hikes, contributing to a growing concern about the stability of home values and where mortgage rates are headed in the face of a negative economic shift.

If the United States were to enter a recession, rest assured, there is a silver lining for clients: during periods of prolonged and significant economic decline, you always see mortgage rates drop.

Additionally, if we take a holistic approach to the market, we see that time and time again, housing remains strong through recessions, despite many of today’s headlines.

Below, we explore how a recession could impact real estate today and review facts and figures that you can use to inspire clients to take a confident next step.

Navigating Recession Realities

The way we measure "economic decline" can differ, but researchers typically look at metrics like the nationwide unemployment rate and income. These factors “trickle down” to affect the rest of the economy—things like the hospitality industry, the government, healthcare, and real estate.

For people looking to buy a home, a recession can bring some advantages.

When the economy is not doing well, home prices often drop, which can be good news for those who want to find a good deal; plus, during recessions, mortgage rates usually stay low, meaning buyers can get a home with lower monthly payments.

On the other hand, for those looking to sell their home during a recession, things might not be as positive.

When the economy isn't doing well, more people can lose their jobs, which can make it tough for homeowners. People usually try to cut back on spending when things are tough, and this can mean struggling to pay things like car loans, utility bills, and their mortgages.

If someone can’t keep up, they may decide to sell their home and find a cheaper place to live, like an apartment or a smaller house. When a lot of people are selling their homes, it can put downward pressure on home prices do to supply and demand principles.

Additionally, if people are feeling pressure to sell quickly, they might not have the time or money to fix up their homes; when a home is sold as-is, it means the seller doesn't make any improvements, and this can make the home sell for less money, too. When homes are sold for less money, it can affect the prices of other similar homes that are for sale, and this can keep pushing prices down until the economy gets better.

How Would a Recession Impact Home Value? The Silver Lining for Buyers (2)

Rent often remains high during recessions

During most recessions, the cost of renting usually goes in the opposite direction of buying a home; rent prices usually push higher due to increased demand for renters, especially those who have sold their homes and need a temporary place to live until the economy and their finances improve.

What Does This Mean for Mortgage Rates?

Sometimes, the most effective lessons are learned from looking to the past—over the course of the last several recessions in the United States, mortgage rates declined significantly.

How Would a Recession Impact Home Value? The Silver Lining for Buyers (3)

The chart above tracks mortgage rates against recessionary periods from 1972 through last year; during our last recessionary period, rates dropped from 3.75 percent to 2.75 percent; before that, they dropped 6 percent to 4.8 percent.

The pattern is clear: during every recession, the economy slows, inflation comes down, and mortgage rates decline.

What Does This Mean for Home Values?

Beyond rates, there are a lot of people who worry if a recession occurs, it will force them to become upside down on the biggest investment of their life. Here’s why that is not expected to happen:

Many people believe a recession would push home prices down because they can remember the housing bubble of 2008 and mistakenly believe the recession caused the bubble.

However, it was actually the opposite—the housing bubble was so detrimental to the economy, it led the US into a recession. In the chart below, the green lines indicate recessionary periods going back to the 1960s; the black line is home values. In every single recession, home values actually either remained stable or increased during the recession. The one exception is the housing bubble in the late 2000s.

How Would a Recession Impact Home Value? The Silver Lining for Buyers (4)

What Made the 'Great Recession' Different?

The recession that occurred in the US from late 2007 to 2009 stood out because it was created because of a huge problem in the housing market. Unlike regular tough times for the economy, when home prices stay the same or experience some growth, we saw home prices crashing down.

Several factors set the 'Great Recession' apart from other recessions:

Housing collapse. Many homeowners found themselves trapped in mortgages that exceeded the value of their homes, a situation commonly referred to as being "underwater." This was a direct consequence of the housing bubble's burst.

Financial crisis. The collapse of major financial institutions and the interconnectedness of global financial markets led to a severe credit crunch, making it difficult for businesses and consumers to access credit.

How Would a Recession Impact Home Value? The Silver Lining for Buyers (5)

Global impact. The effects of the Great Recession extended far beyond the United States. It had a global impact, affecting economies and markets around the world. This was in contrast to typical recessions, which tend to have more localized impacts.

Job losses. The Great Recession led to substantial job losses across various industries, contributing to a significant increase in unemployment rates. This was a consequence of the economic turmoil caused by the housing market collapse and the subsequent financial crisis.

Government help. The response to the Great Recession involved unprecedented government intervention and monetary policy actions. Central banks and governments worldwide took measures to stabilize financial markets, stimulate economic activity, and prevent a deeper and prolonged recession.

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The Power of Professional Guidance

In times of economic uncertainty, the significance of collaborating with seasoned real estate professionals and mortgage experts cannot be overstated. Our insights offer a sense of reassurance and peace of mind to clients that stems from having a well-informed, strategic plan. In the midst of economic turbulence, the value of such guidance becomes even more pronounced. With our assistance, the journey through uncertain economic times becomes less daunting, transforming what might be a nerve-wracking endeavor into a well-guided, informed pursuit of homeownership goals.

Let’s work together to make homeownership safe and easy for clients, no matter their life stage or long-term financial goals. Click here to provide clients with a customized quote today or explore additional blogs here.

How Would a Recession Impact Home Value? The Silver Lining for Buyers (2024)

FAQs

How Would a Recession Impact Home Value? The Silver Lining for Buyers? ›

For people looking to buy a home, a recession can bring some advantages. When the economy is not doing well, home prices often drop, which can be good news for those who want to find a good deal; plus, during recessions, mortgage rates usually stay low, meaning buyers can get a home with lower monthly payments.

How will recession affect home value? ›

A recession can impact the housing market in several ways. Typically, buyer demand weakens due to economic uncertainty, potentially leading to price drops or mortgage rates typically drop. However, the current situation is unique, with already high interest rates and low housing inventory.

Is a recession good or bad for home buyers? ›

During a traditional recession, the Fed will usually lower interest rates. This creates an incentive for people to spend money and stimulate the economy. It also typically leads to more affordable mortgage rates, which leads to more opportunity for homebuyers.

How did the Great Recession affect the housing market? ›

Large, nationwide declines in home prices had been relatively rare in the US historical data, but the run-up in home prices also had been unprecedented in its scale and scope. Ultimately, home prices fell by over a fifth on average across the nation from the first quarter of 2007 to the second quarter of 2011.

What happens if you buy a house right before a recession? ›

However, it is difficult to time the market. Therefore, you might buy a home at a great price, but the home you buy may be worth less before the recession ends. Risk of Foreclosure – During recessions job losses increase. If you lose your job or have a reduction in income you may not be able to afford the payment.

What gets cheaper during a recession? ›

Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.

Should I sell my house now before a recession? ›

Should I sell my house now, before there's a recession? Recessions mean belt tightening and potential layoffs. If your area is hard-hit by job losses, the number of qualified buyers will be severely limited — if you're concerned, it might be best to sell before that (potentially) happens.

What happens to my mortgage if the economy collapses? ›

What Happens To Your Mortgage Rates & Payments? If you have a fixed-rate mortgage, then your monthly payments will remain the same, which can be beneficial in a high-inflation environment. However, if you have an adjustable-rate mortgage, expect your payments to increase.

Is a recession a good time to build a house? ›

A recession can allow you take advantage of better pricing on everything from labor costs to the price point of building materials. As a homeowner, prices during a recession are generally more negotiable, so be sure to brush up on your bargaining skills!

Is the US in recession in 2024? ›

Not this year nor the year after. The Federal Reserve's policymaking committee of 19 officials released a new set of economic projections last week, showing that they now expect economic growth in 2024, 2025 and 2026 to be even stronger than they previously thought.

How long did it take for house prices to recover after 2008? ›

Home prices fully recovered by late 2012. If someone bought a house at the very peak of the recession in 2007 and held the property for 5 years, they made money in appreciation after 2012. It took 3.5 years for the recovery to begin after the recession began.

How many people lost their houses in 2008? ›

The Crash. The collapse of the housing market during the Great Recession displaced close to 10 million Americans as rising unemployment led to mass foreclosures. 1 In 2008 alone, 3.1 million Americans filed for foreclosure, which at the time was one in every 54 homes, according to CNN Money.

How much did property values drop in 2008? ›

The long, sharp slide in Southern California home values is all but eliminating demand for new houses.

Is it better to have cash or property in a recession? ›

Cash. Cash is an important asset when it comes to a recession. After all, if you do end up in a situation where you need to pull from your assets, it helps to have a dedicated emergency fund to fall back on, especially if you experience a layoff.

Should I buy a house now or wait for a recession? ›

If your credit score is strong, your employment is stable and you have enough savings to cover a down payment and closing costs, buying now might be smart. If your personal finances are not ideal at the moment, or if home values in your area are on the decline, it might be better to wait.

What property to buy during a recession? ›

Types of Properties to Invest in During a Recession

As mentioned earlier, residential real estate is your best bet. Among residential properties, certain types are particularly suited to generate rental income during economic downturns. These include: Duplexes, triplexes, and quadplexes.

Should I sell my house now or wait until 2024? ›

Best Time to Sell Your House for a Higher Price

April, June, and July are the best months to sell your house in California. The median sale price of houses in June 2023, was $796,400, which is expected to grow more in 2024. However, cities like Arcadia and San Mateo follow an upward trend throughout the year.

How much did house prices drop in the recession in 2008? ›

S&P/Case-Shiller Home Price Indices: Home prices fell by 18.2% in November 2008 compared to November 2007 in 20 major metropolitan areas. This was the largest annual decline in the history of the index, which dates back to 1987. For the whole year of 2008, the index showed a decline of 15.3% compared to 2007.

What happens to my mortgage if the housing market crashes? ›

One of the most immediate impacts is on mortgage interest rates. As housing prices plummet, banks become much more cautious about lending money for home loans. To offset the increased risk, they typically raise interest rates on mortgages.

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