Today’s Real Estate Market Trends: What Past Recessions Have Taught Us

As the talk of a potential recession grows, many buyers are wondering what impact it could have on the housing market trends. With two in three economists forecasting a recession in 2023, it’s understandable to have concerns. However, examining the historical data from previous economic downturns can shed some light on what we can expect from the real estate industry.

Contrary to popular belief, a recession doesn’t always lead to falling home prices, as the market fundamentals today are different than they were during the 2008 housing crisis. In fact, historical data shows that home values have appreciated in most recessions while mortgage rates have declined. 

So, while a recession may be on the horizon, buyers shouldn’t be afraid of what it could mean for the housing market trends today. In this article, we will take a closer look at past recession data to provide insights into the relationship between real estate market trends and the economy.

What the Historical Data Tells Us About the Housing Market Trends During Past Recessions

The possibility of a recession can be daunting for anyone, especially for those who are looking to buy or sell a home in the near future. However, it’s important to remember that a recession doesn’t necessarily mean that the housing market will experience a drastic decline. In fact, historical data suggests that home prices have appreciated during most past recessions, with the exception of the housing crisis of 2008.

According to data from the National Bureau of Economic Research, since 1980, the US economy has experienced six recessions, and home prices have appreciated in four of them. The graph below shows the performance of home prices during these recessions.

As the graph shows, home prices actually appreciated during the recessions of 1980, 1982, 1990-1991, and 2001. The only two recessions during which home prices declined were the recession of 1990-1991, which saw a decline of 1.9%, and the Great Recession of 2008, which saw a decline of 19.7%.

It’s worth noting, however, that the housing market trends during the Great Recession were different from the current housing market. Experts agree that the current housing market is not about to crash because the fundamentals of the market are different than they were in 2008. 

The 2008 crisis was largely the result of overinflated home prices and an excess of subprime mortgages. Today’s market, however, has stronger lending standards and is less prone to overinflation. Furthermore, many regions of the country are experiencing a shortage of housing inventory, which could help keep prices stable or even increase them.

In summary, while there is no guarantee that home prices won’t fall during a recession, historical data and current market conditions suggest that it’s not a foregone conclusion. Homebuyers and sellers should consult with a knowledgeable real estate agent to get a better sense of their local current housing market and how it might be impacted by a potential recession.

Real Estate Recession?: Economic Impact on Mortgage Rates

During an economic slowdown, mortgage rates tend to decline. According to Fortune, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the past five recessions. In many cases, they continued to fall even after the recession was technically over.

Looking ahead to 2023, market experts predict that mortgage rates will stabilize below the peak seen in recent years. This is because mortgage rates tend to respond to inflation, and early indications suggest that inflation is beginning to cool. If this trend continues, rates may fall a bit further, but it’s unlikely that we’ll see a return to the historically low rates of 3%.

In any case, the overall message is clear: there’s no need to fear a recession when it comes to the housing market. In fact, experts suggest that a recession in 2023 would likely be mild and short-lived, and that housing would play a key role in a quick economic rebound. 

This sentiment is echoed in the 2022 CEO Outlook from KPMG, which indicates that global CEOs anticipate a mild and short recession over the next 12 months, but are optimistic about the global economy over a three-year horizon. If you have been nervous about a real estate recession, rest assured that the data support a positive outcome. 

If you’re interested in buying or selling a home in today’s real estate market, contact us today, your trusted and knowledgeable Verani Realty REALTORS®. Call your local Verani agent or visit verani.com for more information.