When the economy gets rough, and fears rise, the best action to take is to educate ourselves with research, facts, and understanding data. Our history provides historical trends on economics and the housing market during pandemics. We can study the peaks and valleys of what has come before to confidently evaluate and understand this situation. Global recession is on everyone’s minds, and it is important to take an objective look at past occurances and how the housing market has weathered the storm.
1. Today’s Market Is Very Different from 2008
Our current market conditions significantly differ from the time when housing was a key factor that triggered a recession. The housing crash of 2008 comprised in part of a surplus of inventory, excessive equity-tapping, easy-to-access mortgages to skyrocketing home price appreciation, and more! Thankfully we’re not where we were 12 years ago. None of these factors are in play today. In fact, the housing market is in a position to stabilize our economy, as opposed to 2008 when it al but caused the economic crash.
According to Danielle Hale, Chief Economist at Realtor.com, if there is a recession:
“It will be different than the Great Recession. Things unraveled pretty quickly, and then the recovery was pretty slow. I would expect this to be milder. There’s no dysfunction in the banking system, we don’t have many households who are overleveraged with their mortgage payments and are potentially in trouble.”
In addition, the Goldman Sachs GDP Forecast released this week indicates that although there is no growth anticipated immediately, gains are forecasted heading into the second half of this year and getting even stronger in early 2021.
As indicated by the expert sources, this is not a collapse of the financial industry but rather a momentary event in time. In stark contrast to the crash of 2008 (which failed to regain a sense of normal for almost four years), this is just a drop that will rebound quickly. Our reality is that this poses plenty of near-term financial challenges and a recovery from unemployment that rivals the Grate Depression, but a potential recession this year is not a repeat of the long-term housing market crash we remember all too well.
2. A Housing Crisis is Not Always the Result of a Recession
Now, let’s take a look at the past five recessions in U.S. history. Three of them actually saw home values appreciated. It is true that during the last recession they sank by almost 20%, but clearly identified above, 2008 presented very different circumstances. I do not ignore that there was hardship, but want to point out the contrast of the four previous recessions where home values depreciated only once by less than 2%. Residential real estate values increased by 3.5%, 6.1%, and 6.6% in the other three as seen below.
3. How We Can Be Confident About What We Know
Covid-19’s global impact brings very real concerns about the economy. With the health and wellness of our friends, families, and loved ones being high on everyone’s emotional radar, these concerns are scary.
“Several economists made clear that the extent of the economic wreckage will depend on factors such as how long the virus lasts, whether governments will loosen fiscal policy enough and can markets avoid freezing up.”
With this said, let us be confident that even though we do not know the exact impact this virus will have on our housing market, we definatly know that the housing market is not the driving factor.
The reasons we move have not changed because of the virus – marriage, children, job changes, retirement, etc. These are, and will remain steadfast parts of life. Our need for homes will also not change. “Everyone needs someplace to live.” as noted in a recent article in the New York Times.
Recession concerns are real, but housing isn’t the driver. If you have questions about what it means for your family’s homebuying or selling plans, I am happy to meet with you to discuss today’s local market, and what it can mean for you.