By now you’ve likely heard murmurings of an impending economic recession. According to the National Association for Business Economics’ Economic Policy Survey, 3 out of 4 of the business economist panelists expect a recession by 2021. But let’s hold off on the panic button for just a minute, because this does not necessarily mean a downturn in the housing market.
In fact, historically, it can mean quite the opposite.
We Aren’t Seeing a Repeat of 2008
Let’s be clear that we’re not going down the same road we went down a decade ago. The infamous 2008 “Great Recession” was caused by the subprime mortgage crisis. Due to overborrowing and flawed lending, the US economy entered a period of intense turmoil and the housing market crashed. If you were in real estate at the time, you remember. Heck, if you were above 18 years old at the time, you remember.
But this time around things are different. For one thing, experts are not predicting that the economy will fall anywhere near the levels it dropped to in 2008. Additionally, this downturn has little to do with the housing industry. While it’s too early to say with certainty, trade conflict is a noted contributor to the instability and recession predictions. Additionally, Germany’s economic dip and Britain’s controversial choice to leave the European Union (Brexit) have added insecurity and uncertainty to the global economy as a whole.
6 Reasons We Don’t Forsee a Housing Collapse
- 1. Rates of subprime loans are low (5% in 2015 compared to 20% in 2005)
- 2. Higher lending standards from banks
- 3. “Flip” market is under control with tougher lending standards
- 4. Home prices are outpacing income
- 5. There is a lower rate of bankruptcy filings (50% lower since the implementation of the Affordable Care Act!)
- 6. Inventory and demand are relatively balanced
You still with me? Here’s the good news. Most real estate experts predict the housing market will be just fine.
What the Experts are Saying
The numbers below – detailing home price variation during the previous 5 economic recessions have been buzzing around, creating waves on social media over the past few weeks. Real estate expert, Steve Harney, and Keeping Current Matters have been leading the charge to #SpreadTheTruth that an impending recession will not equate to a housing crash. And what we’re seeing is compelling!
As you can see in the above image, home price actually increased during 3 out the 5 most recent recessions. Home prices dipped just slightly in the 1991 recession (approx. -1.9%), and, of course, in “The Great Recession” of 2008, the housing market crashed (prices dipped -19.7%). What this shows us is that a weak housing market is not correlated with a general economic downturn.
The following numbers are from the Zillow Q1 2019 Home Price Expectations Survey. Here you can see that between now and 2023 panelists are predicting increased percentages in home values. Optimistic estimates cap out at about +28.3%, whereas pessimistic predictions still show an increase of +6.6%.
Proceed with Cautious Optimism
(And arm yourself with data)
Of course, for every optimistic prediction you can find a pessimistic one to match. And with data to back it up. So we urge you not to move forward into 2020 thinking that the housing market is indestructible because we all know that is never truly the case.
“Constrained home supply, persistent demand, very low unemployment, and steady economic growth have given a jolt to the near-term outlook for U.S. home prices. These conditions are overshadowing concerns that mortgage rate increases expected this year might quash the appetite of prospective home buyers. – Pulsenomics founder Terry Loebs”
Clearly, there is still some room for caution. And if you pay attention to headlines, you’ll see chatter surrounding the bursting of the “housing bubble.” But we believe that overall, moving into the end of 2019 and onwards into 2020, agents shouldn’t be running towards the panic button. Stay calm, stay informed, and keep sharing with your clients.
Get In Front of Your Sphere
Remember: Sharing Information is Your Job!
You are the expert. The hyper-local “go-to.” So it’s your job to stay in the loop not only with national housing trends but also with granular data about your market. Equip yourself with the right information and then get in front of your clients and prospects. When there is good news and promising data shout it from the rooftops! When there’s troubling news, be forthright and help counsel your clients to make the right choice. Make sure your sphere knows that they can trust YOU to give them the information they need to make one of the biggest decisions of their lives.
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The post What Does a Possible Economic Recession Mean for the Housing Market? appeared first on BoomTown!.