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How the Next Recession Could Affect the U.S. Housing Market

How the Next Recession Could Affect the U.S. Housing Market
4 min. read

Photo: TierneyMJ / Shutterstock

Although the U.S. economy has been stable over the past few years, there is frequent talk about when the country might experience its next recession. This can be concerning for homeowners who likely remember the impact the Great Recession had on the housing market.

December 2007 marked the beginning of the Great Recession, and while it technically ended in June 2009, many American homeowners are still feeling the effects.

Stats from real estate information company ATTOM Data Solutions shows that at the end of 2019’s first quarter, around 5.2 million homeowners in the U.S. owed more on their home than what their property is actually worth.

That represents 9.1% of all properties mortgaged in the country, which is slightly higher than the 8.8% at the end of 2018. However, that number is still much lower than what was seen in the years after the Great Recession. For example, at the peak in 2012, almost 30% of homeowners were struggling to pay their mortgage.

Things have improved overall. Prices for U.S. homes for sale have been increasing and, according to Zillow, values across the country are expected to be up almost 4.1% in 2019. Contributing to the price increases is a national market with lower inventory and a higher number of buyers.

However, every market has its ups and downs, and another recession could be on the horizon. So, what might that look like and how would it affect America’s homeowners?

When Will the Next Recession Be?

Data from the 2019 Zillow Home Price Expectations Survey conducted by Pulsenomics shows that half of the experts consulted believe that the next recession will likely start in 2020, and 19% of those believe it will start in the third quarter of 2020, specifically.

According to the experts, trade policy, a stock market correction, and a geopolitical crisis are all elements that could contribute to the next recession.

What Will the Housing Market’s Role Be?

Mark Fleming, chief economist for title insurance company First American Financial Corporation, noted the role the housing market would play in the next recession:

“If a recession is to occur, it is unlikely to be caused by housing-related activity, and therefore the housing sector should be one of the leading sources to come out of the recession.”

If anything, the housing market has shown to be helpful in the past in recovering from a recession. This is because those who are less affected by such a downturn are still able to buy and sell, and those who already own a home can use its equity.

While issues with lending policies and financial liquidity in the real estate sector contributed to the Great Recession, these will probably not play a part in future recessions.

How Will the Housing Market Be Affected?

During the next recession, homeowners will not likely be making a move until the economy is looking more stable and they are feeling more confident. The demand for housing will probably decrease somewhat due to employment loss or uncertainty, but this decrease isn’t expected to last long.

Some housing markets will be affected more than others, as is the case even when the country is not facing a downturn. Markets across the U.S. currently experiencing a decrease in buyer demand may be better set up to weather an upcoming recession.

As Skylar Olsen, director of economic research for Zillow, explained:

“Housing will be even better positioned to make it through the next recession without significant home loss.”

How Will Homeowners Be Affected?

Compared to the period before the Great Recession, American homeowners are in a better place. The previous housing crisis was mostly a result of job loss combined with homeowners’ lack of equity in their homes.

Current homeowners don’t seem to be in as precarious a situation this time around. With more equity and many homeowners appearing to be locked into a 30-year, fixed-rate mortgage, they have lower interest rates and more affordable monthly payments. Fleming noted:

“Homeowners, collectively, have a pretty big cushion today to withstand some price decline.”

Those who haven’t refinanced to take advantage of lower rates still have time to do so, as the Federal Reserve has said that it plans to keep the federal funds rate at 2.5% for the rest of the year.

Homeowners who refinance and who ensure they have at least six months emergency savings will be in a good position to withstand any upcoming recession and the effects it might have on the U.S. housing market.

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