How a Recession Doesn't Equal a Housing Crisis
There are some key differences between today’s market and that of 2006
The one thing every homeowner today needs to know is that a recession does not equal a housing crisis. With the ongoing trend of increasing home prices, low mortgage rates, tight inventory and general inflation some experts suggest that we could be heading towards a recession but if this is true, an 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 illustrate how home prices are not always affected during recessions we can look at some historical data. There have been six recessions in the country in the past 4 decades. During recessions in 1980, 1981, 2001 and 2020 homes had appreciated while only in 1991 and 2008 did they depreciate. During the recession of the early 1990’s home prices dropped by less than 2%. Perhaps people more vividly remember the recession of 2008 and feel that this same thing may occur again. However, that market was very different from things today. For one, lenders created artificial 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 even second homes. When prices started to decline they found themselves underwater leading to foreclosure. The large amount of foreclosure properties only fueled the decline of home prices.
Ultimately if you examine the data should we be heading towards a recession the historic trends prove that it does not equal a housing crisis.