Blog posted On September 10, 2019
Lately, numerous networks have been broadcasting news about an impending recession. The economy ebbs and flows through various economic cycles, and there are times when sustained growth is followed by a downturn. After the longest period of economic expansion in American history, a recession would not be unusual. When we hear “recession” today, many of us may immediately recall the Financial Crisis of 2007-2008 and the ensuing Great Recession. The Great Recession was brought on in part by irresponsible lending practices and the housing market collapse. However, if a recession takes place soon, it will likely not have the same impact on housing as the Great Recession.
Unlike other recessions, the Great Recession was brought on by irresponsible lending practices and the housing boom and bust. Curbed contributor Jeff Andrews explained, “The 2008 recession didn’t cause the housing market to go into freefall. The housing market going into freefall caused the recession.” With today’s safe lending standards and protections put in place by the Consumer Financial Protection Bureau (CFPB) the lending landscape looks nothing like it did over a decade ago. The possible recession would be a fairly standard period of economic downturn.
Home prices most likely won’t fall.
If you are waiting to buy a home because you expect home prices to drop during the next recession, you may want to reconsider. What happened to home prices in 2008 was an exception. Generally, home prices tend to increase during a recession, because housing is a necessity, and the buyers shopping during the recession may be in a better less-recession-sensitive financial situation. During the two minor recessions in the 1980s and also the recession that followed the dot com bust in the late 90s, home prices actually increased. A similar scenario today would be entirely possible, as there already are not enough homes for sale.
Your rent will keep going up.
If you decide to keep renting until the economy turns around, it won’t make much of a difference either. The good news is, rental rate appreciation may slow down, but it’s still going to be going up. Greg Willett, chief economist at RealPage, predicts apartment rental rates will slow from an annual growth rate of 3% to an annual growth rate in the range of 1.5% to 2%. The luxury market will see the most significant impact, as they may need to offer incentives or lower rental rates to attract wealthier renters. This trend likely won’t skew downward to the average renter.
Home building may slow down.
Home builders, who are already facing an uphill battle with costlier building materials due to tariffs and a shortage of land and labor, may be even less likely to break ground during a recession. National Association of Home Builders’ (NAHB) chief economist, Robert Dietz, reported that only about 10% of single-family home builders offered incentives last year compared to 40% this year. Incentives can include various discounts to try and get buyers into homes.
An upcoming recession will likely not have the same impact on the housing market that the Great Recession did. The biggest difference is that the previous recession was caused by housing-related activity. Today’s stringent lending standards and organizations like the CFPB were put in place to protect consumers and lenders from another housing-related recession.
Sources: CNBC, Curbed, Realtor.com