How Would a Recession Impact Home Value? The Silver Lining for Buyers (2024)

How Would a Recession Impact Home Value? The Silver Lining for Buyers (1)

It’s a tough question that’s been nibbling at the back of the minds of homeowners, prospective buyers, and investors for over a year now—how would a recession impact home values?

Recent headlines highlight volatile markets and the ripple effects of global events, including multiple interest rate hikes, contributing to a growing concern about the stability of home values and where mortgage rates are headed in the face of a negative economic shift.

If the United States were to enter a recession, rest assured, there is a silver lining for clients: during periods of prolonged and significant economic decline, you always see mortgage rates drop.

Additionally, if we take a holistic approach to the market, we see that time and time again, housing remains strong through recessions, despite many of today’s headlines.

Below, we explore how a recession could impact real estate today and review facts and figures that you can use to inspire clients to take a confident next step.

Navigating Recession Realities

The way we measure "economic decline" can differ, but researchers typically look at metrics like the nationwide unemployment rate and income. These factors “trickle down” to affect the rest of the economy—things like the hospitality industry, the government, healthcare, and real estate.

For people looking to buy a home, a recession can bring some advantages.

When the economy is not doing well, home prices often drop, which can be good news for those who want to find a good deal; plus, during recessions, mortgage rates usually stay low, meaning buyers can get a home with lower monthly payments.

On the other hand, for those looking to sell their home during a recession, things might not be as positive.

When the economy isn't doing well, more people can lose their jobs, which can make it tough for homeowners. People usually try to cut back on spending when things are tough, and this can mean struggling to pay things like car loans, utility bills, and their mortgages.

If someone can’t keep up, they may decide to sell their home and find a cheaper place to live, like an apartment or a smaller house. When a lot of people are selling their homes, it can put downward pressure on home prices do to supply and demand principles.

Additionally, if people are feeling pressure to sell quickly, they might not have the time or money to fix up their homes; when a home is sold as-is, it means the seller doesn't make any improvements, and this can make the home sell for less money, too. When homes are sold for less money, it can affect the prices of other similar homes that are for sale, and this can keep pushing prices down until the economy gets better.

How Would a Recession Impact Home Value? The Silver Lining for Buyers (2)

Rent often remains high during recessions

During most recessions, the cost of renting usually goes in the opposite direction of buying a home; rent prices usually push higher due to increased demand for renters, especially those who have sold their homes and need a temporary place to live until the economy and their finances improve.

What Does This Mean for Mortgage Rates?

Sometimes, the most effective lessons are learned from looking to the past—over the course of the last several recessions in the United States, mortgage rates declined significantly.

How Would a Recession Impact Home Value? The Silver Lining for Buyers (3)

The chart above tracks mortgage rates against recessionary periods from 1972 through last year; during our last recessionary period, rates dropped from 3.75 percent to 2.75 percent; before that, they dropped 6 percent to 4.8 percent.

The pattern is clear: during every recession, the economy slows, inflation comes down, and mortgage rates decline.

What Does This Mean for Home Values?

Beyond rates, there are a lot of people who worry if a recession occurs, it will force them to become upside down on the biggest investment of their life. Here’s why that is not expected to happen:

Many people believe a recession would push home prices down because they can remember the housing bubble of 2008 and mistakenly believe the recession caused the bubble.

However, it was actually the opposite—the housing bubble was so detrimental to the economy, it led the US into a recession. In the chart below, the green lines indicate recessionary periods going back to the 1960s; the black line is home values. In every single recession, home values actually either remained stable or increased during the recession. The one exception is the housing bubble in the late 2000s.

How Would a Recession Impact Home Value? The Silver Lining for Buyers (4)

What Made the 'Great Recession' Different?

The recession that occurred in the US from late 2007 to 2009 stood out because it was created because of a huge problem in the housing market. Unlike regular tough times for the economy, when home prices stay the same or experience some growth, we saw home prices crashing down.

Several factors set the 'Great Recession' apart from other recessions:

Housing collapse. Many homeowners found themselves trapped in mortgages that exceeded the value of their homes, a situation commonly referred to as being "underwater." This was a direct consequence of the housing bubble's burst.

Financial crisis. The collapse of major financial institutions and the interconnectedness of global financial markets led to a severe credit crunch, making it difficult for businesses and consumers to access credit.

How Would a Recession Impact Home Value? The Silver Lining for Buyers (5)

Global impact. The effects of the Great Recession extended far beyond the United States. It had a global impact, affecting economies and markets around the world. This was in contrast to typical recessions, which tend to have more localized impacts.

Job losses. The Great Recession led to substantial job losses across various industries, contributing to a significant increase in unemployment rates. This was a consequence of the economic turmoil caused by the housing market collapse and the subsequent financial crisis.

Government help. The response to the Great Recession involved unprecedented government intervention and monetary policy actions. Central banks and governments worldwide took measures to stabilize financial markets, stimulate economic activity, and prevent a deeper and prolonged recession.

RELATED: From Fright to Freedom: Exorcising This Year’s Top Mortgage Fears

The Power of Professional Guidance

In times of economic uncertainty, the significance of collaborating with seasoned real estate professionals and mortgage experts cannot be overstated. Our insights offer a sense of reassurance and peace of mind to clients that stems from having a well-informed, strategic plan. In the midst of economic turbulence, the value of such guidance becomes even more pronounced. With our assistance, the journey through uncertain economic times becomes less daunting, transforming what might be a nerve-wracking endeavor into a well-guided, informed pursuit of homeownership goals.

Let’s work together to make homeownership safe and easy for clients, no matter their life stage or long-term financial goals. Click here to provide clients with a customized quote today or explore additional blogs here.

How Would a Recession Impact Home Value? The Silver Lining for Buyers (2024)

FAQs

How Would a Recession Impact Home Value? The Silver Lining for Buyers? ›

When the economy is not doing well, home prices often drop, which can be good news for those who want to find a good deal; plus, during recessions, mortgage rates usually stay low, meaning buyers can get a home with lower monthly payments.

How will recession affect home value? ›

Lower prices: With fewer buyers who can afford the purchase, home sellers will likely no longer see multiple offers or bidding wars for their properties. This can lead to lower home prices. Lower rates: During a recession, the Federal Reserve will often lower interest rates to stimulate the economy.

Is silver a good investment during a recession? ›

Silver's performance in a recession

While a recession could negatively impact silver because it is one of the few commodities that has actual monetary and industrial value, it has historically profited from economic recovery and reflation at the end of a recession.

Is it better to have cash or property in a recession? ›

Cash: Offers liquidity, allowing you to cover expenses or seize investment opportunities. Property: Can provide rental income and potential long-term appreciation, but selling might be difficult during an economic downturn.

What will happen to mortgage rates if there is a recession? ›

Interest rates usually fall in a recession as loan demand declines, investors seek safety, and consumers reduce spending. A central bank can lower short-term interest rates and buy assets during a downturn to stimulate spending.

Should I sell my house now or wait until 2024? ›

If popular opinion is any guide, now may still be a good time to sell despite the evolving market. According to Fannie Mae's February 2024 Home Purchase Sentiment Index, about two-thirds of respondents — 65 percent — feel it is a good time to sell.

Should I sell my house now before recession? ›

Those sell-to-buy clients would likely do better selling in a recession. On the other hand, if you are going to sell a home and do not need to immediately buy a home, selling your home before a recession is best. When only selling you want to sell at a time when the market favors home sellers.

What happens to silver prices during a recession? ›

The demand for precious metals often increases during times of economic uncertainty as investors seek safe havens for their funds. This pushes up the price of gold and silver relative to other assets, such as stocks or bonds, thereby protecting investors from inflation.

What is the best asset to hold during a recession? ›

Still, here are seven types of investments that could position your portfolio for resilience if recession is on your mind:
  • Defensive sector stocks and funds.
  • Dividend-paying large-cap stocks.
  • Government bonds and top-rated corporate bonds.
  • Treasury bonds.
  • Gold.
  • Real estate.
  • Cash and cash equivalents.
Nov 30, 2023

What is the best precious metal for a recession? ›

Past performance is not a reliable indicator of future results. Due to its reputation for being a safe-haven asset, gold tends to perform well during a recession.

What not to buy during a recession? ›

Don't: Take On High-Interest Debt

It's best to avoid racking up high-interest debt during a recession. In fact, the smart move is to slash high-interest debt so you've got more cash on hand. Chances are your highest-interest debt is credit card debt.

Where is your money safest during a recession? ›

Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.

Is it harder to sell a house during a recession? ›

Buyers in a recession may struggle to purchase your home if mortgage rates remain high, and your home may not sell for as much as it could have gotten during the height of the seller's market.

Will housing be cheaper if the market crashes? ›

A market crash would likely push prices down and make housing cheaper, but it would remain unaffordable for many if the crash was caused by a larger recession.

Is it good to buy a house during a recession? ›

There are several reasons to consider buying a home during recessions - the two main reasons are less competition and lower prices. There are also several potential drawbacks, like sky-high interest rates, a floor on pricing decreases and potential income changes if the U.S. does officially slide into a recession.

Can you lose money in a savings account during a recession? ›

It's safe from the stock market: If a recession causes short-term market volatility, you won't lose money on your high-yield savings deposits, unlike investing in the stock market.

Will my house sell in a recession? ›

It is absolutely possible to succeed in selling your house during a recession. It requires a unique approach and careful consideration for these important home selling tips and questions to reflect on.

How much did house prices drop in the recession 2008? ›

For the whole year of 2008, NAR reported that the median existing-home price dropped by 9.5% to $197,100, compared to $217,900 in 2007.

How long did it take for house prices to recover after 2008? ›

Home prices fully recovered by late 2012. If someone bought a house at the very peak of the recession in 2007 and held the property for 5 years, they made money in appreciation after 2012. It took 3.5 years for the recovery to begin after the recession began.

Are we in a recession 2024? ›

In the aggregate, for the U.S. the Sahm rule has not forecast a recession, but looking at state-level unemployment data, several states have seen relatively stark rises in unemployment from January 2023 to January 2024.

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