Is the Real Estate Market Going to Crash?
There are many economists signaling that the United States is heading towards a recession. If you watch the news you’ll see that inflation is climbing, the supply chain can’t keep up, gas prices are climbing, there’s a shortage of baby formula, the stock market is in the toilet, and The Fed is trying to keep things under control. So what does all this mean for real estate?
First and foremost, a recession does not equal a housing crisis. That’s the most important thing everybody needs to know and understand. The National Bureau of Economic Research defines a recession like this:
“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.”
We decided to take a look at the past 6 recessions in the United States and see what happened to real estate prices during those times.
Over the past 40 years, there have been 6 recessions in the United States. Over those past 6 recessions, home prices appreciated 4 times and depreciated 2 times. So if we look only at the historical data, there is proof that when the economy slows down it doesn’t mean that the home values will fall or depreciate.
Most people vividly remember the financial and housing crisis in 2008 where home values decreased by almost 20% and they think if we slide into another recession history will repeat itself. What’s important to remember about the 2008 crisis is that it was a global financial crisis that trickled down. The fundamentals are very different today compared to 2008.
The bottom line is this:
While we aren’t yet in a recession, if one is coming it doesn’t mean that homes will lose value. History has proved that a recession does create a housing crisis.