Yes, We Are in a Recession, Housing Crash? No!
On Monday, the National Bureau of Economic Research (NBER) announced that the U.S. economy is officially in a recession. A recession is defined as:
“A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.”
While the pandemic caused a significant decline in economic activity earlier this year, the current real estate market is in a different position than during the 2008 crisis. Mark Fleming, Chief Economist at First American, explained:
“Many still bear scars from the Great Recession and may expect the housing market to follow a similar trajectory in response to the coronavirus outbreak. But, there are distinct differences that indicate the housing market may follow a much different path. While housing led the recession in 2008-2009, this time it may be poised to bring us out of it.”
Four Major Differences in Today’s Real Estate Market
- Families have large sums of equity in their homes.
- There is a shortage of housing inventory, not an overabundance.
- Irresponsible lending practices no longer exist.
- Home price appreciation is not out of control.
It’s important to remember that a recession does not automatically lead to a housing crash. In three of the four recessions prior to 2008, home values actually increased. In the other one, prices depreciated by only 1.9%.
Bottom Line
Yes, we are officially in a recession. However, unlike 2008, today’s housing market is in much better shape to weather the economic downturn.
