What is a recession and how does it actually influence our real estate market?
To answer the first question, a recession is when the GDP falls for two consecutive quarters. Sometimes it lasts just those two quarters, sometimes it lasts longer.
To answer the second question, let’s look at some historical data. In 1980, we went through a recession and home prices appreciated by 6.1%. In 1981, we were still in the same recession, and once again, home prices appreciated—this time to the tune of 3.5%. In 1991, there was another recession, and home prices dropped just 1.9%. Then in 2001, during another recession, home prices rose 6.6%.
As you can see, there’s a trend here: Just because we go through a recession, it doesn’t mean home prices will fall. In fact, in three of the five recessions we’ve been through in the past 40 years, home prices went up.
The last recession we went through, as you might guess, was back in 2008, and home prices dropped 19.7%. The difference between that recession and all the others, though, is that it was caused specifically by the housing market. The market was naturally inflated by all the bad loans handed out.
So if you’re a buyer or a seller sitting on the fence waiting to see if prices fall or the market crashes, let me put your mind at ease. Despite what the media might have you believe, real economists anticipate a 3% to 4% appreciation in the next couple of years. Will the market shift at some point? Absolutely—the market is always correcting itself. The only way you’ll time the market, though, is if you get lucky.
If you’re a buyer waiting for the recession to hit so you can get an amazing deal, that’s probably not going to happen. If you’re waiting for a better deal, that might happen, but don’t forget about interest rates. You might be able to get a home at a better price if you wait a couple of years, but if interest rates go from 3.5% to 5% during that time, you’ll still pay more per month for the same house.
If you’d like to talk more about this topic or you’re thinking of buying or selling a home soon, don’t hesitate to reach out to me. I’d love to help you. Until then, happy selling!