Learning from the Past About the Housing Market and Recessions

Whether or not you follow the economy, chances are you’ve heard whispers of an upcoming recession. Economic conditions are determined by a broad range of factors, so rather than explaining each in depth, both experts and history can tell us what could lie ahead. As Greg McBride, Chief Financial Analyst at Bankrate, says:

“Two-in-three economists are forecasting a recession in 2023 . . .”

As talk about a potential recession grows, you may be wondering what a recession could mean for the Kansas City and national housing markets. Here’s a look at the historical data to show what happened nationally in real estate during previous recessions. This should provide a picture of what a recession could mean for the housing market today.

A Recession Doesn’t Mean Falling Home Prices

Home prices don’t fall every time there’s a recession. As the graph below illustrates, looking at recessions going all the way back to 1980, home prices appreciated in four of the last six recessions. When the economy slows down, it doesn’t mean home values will always fall.

Most people remember the housing crisis in 2008 (the larger of the two red bars in the graph above) and think another recession would be a repeat of what happened then. However, many fundamentals of the market are different than they were in 2008. According to experts, home prices will vary by market, and may go up or down depending on the local area. The average of 2023 forecasts shows prices will be net neutral nationwide, and not fall drastically as they did in 2008.

A Recession Means Falling Mortgage Rates

Research also helps paint the picture of how a recession could impact the cost of financing a home. As the graph below shows, historically, each time the economy slowed down, mortgage rates decreased.

Fortune explains mortgage rates typically fall during an economic slowdown:

“Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over.”

In 2023, market experts say mortgage rates will likely stabilize below the peak we saw last year. That’s because mortgage rates tend to respond to inflation. There are signs that inflation is starting to cool. If inflation continues to ease, rates may fall a bit more, but the days of 3% are likely behind us.

The big takeaway is you don’t need to fear the word recession when it comes to housing. Experts say a recession would be mild, and housing would play a key role in a quick economic rebound. As the 2022 CEO Outlook from KPMG, says:

“Global CEOs see a ‘mild and short’ recession, yet optimistic about global economy over 3-year horizon . . . More than 8 out of 10 anticipate a recession over the next 12 months, with more than half expecting it to be mild and short.”

Bottom Line

While history doesn’t always repeat itself, we can learn from the past. We can see, historically, through most recessions, home values have appreciated and mortgage rates have declined. If you’re thinking about buying or selling a home this year, connect with the Just Say Home KC Team at 816-656-2816. We can share what’s happening in the Kansas City housing market and what it means for your homeownership goals.