How Recessions Affect the Real Estate Market

As your trusted advisors for real estate, we are getting a lot of questions about the housing market and where it will go. Although I always tell my clients that I don’t have a crystal ball, but I would love one! that we use historical data and current economist analysis to navigate the real estate market and help our clients make the best possible decisions. What can history tell us about how recessions impact the housing market? It is good news in a time of what seems is very little good news… Recession does not equal housing crisis…it is typically a safe-haven investment during recessions. Only 2 recessions have impacted the housing market. The recent Great Recession and the Gulf War recession, no other recessions have impacted the US housing market according to data from Freddie Mac. In fact, in the last 5 recessions, 3 have actually shown appreciation, and only 2 have shown a depression in home prices. And yes, the last one was quite painful at almost 20% nationally. Let’s stay positive here, Remember, Historically recessions do very little to negatively impact housing The last recession leaves most of us with the wrong impression, many blame the Great Recession on the housing industry although there were many complex contributing factors. The good news is the data shows that the housing market is poised to lead us out of this current pause. When a home is sold it creates an entire stimulation process for the economy….people buy furniture, they spend money at home improvement stores, they spend on landscaping, etc. 20% of the U.S. GDP is money spent around housing. So, if you are still stuck on the last recession, let’s look at the number differently. The S&P took a 51% correction in the Great Recession over a 3 year period, where the housing was at just under a 20% correction for the same 3 year period. There is also a comparison of 9/11 and what is happening today. What 9/11 has in common is the shock from both events have generated fear and anxiety among the general public. People avoided crowds because they believed another terrorist attack was coming; today, that same concern over getting sick will keep people from engaging in large group activities, putting the same parts of the economy under pressure — airlines, leisure, hospitality, restaurants, entertainment…think about the actives people spend their discretionary money on. Housing, however, faired well and increased between 2000-2002. showing approximately 6.5-8.5% appreciation. Then the market over-heated, you can see that we had double-digit appreciation as high at 12.5%, and then the Great Recession, the 6 years since, we have only had historically typical growth at approximately 4-6%. What caused the double-digit appreciation? Most agree this was the ease of getting a loan at this time, putting pressure on inventory with a record-high number of buyers, driving prices up. After the crisis, the lending criteria became very strict, and it has remained strict as you can see in this chart, preventing a housing bubble. Also, note the Great Recession came in with high inventory nationally, with about an 8 month supply, versus our current 3 month supply, currently Central Ohio is much stronger, with less than a one month inventory. (show inventory slide) Another key difference is post-Great Recession, which is an increase in the equity in our homes. This creates a much different landscape than in 2007. Also, the percentage of income used to purchase a median-priced home is much more manageable right now, at approximately 15% of income versus 25%. Meaning homes are actually more affordable, and so all indications are that housing should not suffer much of a setback. Reach out to us with questions, we are here to help. Check out our social media for info on the Coldwell Banker Food Drive for our region with a goal of raising $40,000, which includes some matching corporate funds. We hope you will participate if you can. We may not all be in the same boat, but we are in the same storm and WE Are Better Together. Reach out to us anytime. https://bbgrouprealestate.com/ OR https://bbgrouprealestate.com/contact-us