Housing markets will do just fine in a recession, economists say

Consumer fears of a recession are growing, and experts say it could cause some Americans to get skittish about possible knock-on effects on the housing market.

One reason for that is many Americans remain haunted by memories of the Great Recession last decade, which caused thousands to lose their homes to foreclosure. But experts say we’re unlikely to see another “real estate fire sale” in the event a new recession.

“This is going to be a much shorter recession than the last one,” George Ratiu, senior economist with realtor.com, wrote in a recent article. “I don’t think the next recession will be a repeat of 2008. The housing market is in a better position.”

And fears of a recession coming any time soon could be overblown, realtor.com noted. According to a survey of 200 members of the National Association for Business Economics, just 2% of economists, academics, policymakers and strategists believe we’ll see a recession this year. However, 38% believe we could see a recession begin next year, while 25% don’t expect one until 2021 at the earliest. Another 14% said the good times would likely continue beyond then.

Also, there are many signs the real estate market is still strong. For example, the Federal Reserve is widely expected to cut interest rates again in September, which would bring mortgage rates down even more. Unemployment is at its lowest point in 50 years, wages are growing, and the U.S. is still going through its longest economic expansion in history.

But if the economy does fall aparet, will home prices plunge again like they did in the Great Recession?

Most economists say no.

Ratiu said that at worst, home prices might flatten during the next recession, but not drop. He said a shortage of homes for sale, combined with the low number being built would likely cushion any price falls against buyer demand.

In addition, the National Association of Realtors’ chief economist Lawrence Yun points out that lending laws are much tighter now than during the last housing crisis. In addition, homeowners these days have record amounts of equity built up in their homes, which means that even if they do lose their jobs they’re unlikely to head directly into foreclosure, and would instead have more time to sell their property by themselves.

However, one expert said that the fragile American psyche means that many are still nervous.
“With people having PTSD from the last time, they’re still afraid of buying at the wrong time,” Ali Wolf, director of economic research at Meyers Research, told realtor.com. “But prices aren’t likely to fall 50% like they did last time.”

Mike Wheatley

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at mike@realtybiznews.com.

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