Housing Impact Predictions For Recession 2021
We’ve experienced economic growth for almost a decade, which is the longest recovery in the nation’s history. Indications are that will continue through most of 2020.
But, depending which “expert” you listen to on any given day, there are plenty of fear mongers out there saying that a recession is just around the corner. With that in mind, we some digging to give you economists housing impact predictions here.
When Will It Hit?
Pulsenomics just released a special report showing that nearly 6 out of 10 of the 90 economists, investment strategists, and market analysts surveyed believe the next recession will occur by the end of 2020 and the start of 2021. Here’s the breakdown:
- 9% believe a recession will occur this year
- 50% believe it will occur in 2020
- 35% believe it will occur in 2021
- 6% believe it will occur after 2021
When asked what would trigger the next recession, the three most common responses by those surveyed were:
- Trade Policy
- Stock Market Correction
- Geopolitical Crisis
What Impact Will It Have On Real Estate?
Challenges in the housing and mortgage markets were major triggers of the Great Recession. However, a future housing slowdown ranked #9 on the list of potential triggers for the next recession, behind such possibilities as fiscal policy and political gridlock.
As far as the impact that a recession may have on home values, the experts surveyed indicated home prices would continue to appreciate over the next few years.
Home price appreciation was at 5% in 2017 and 4.5% in 2018. They called for a 4.1% appreciation rate this year, 2.8% in 2020, and 2.5% in 2021.
Some homeowners still haven’t recovered from the Great Recession of 2007-2009. Nearly 5.2 million homeowners, in fact, are still underwater today. This is still considerably lower than it used to be when negative equity hit its peak in 2012. At that point, nearly 30% of homeowners were underwater on their mortgages.
So Far, So Good
There is plenty of talk in the media about a pending economic. Many political figures are actually wishing for a slowdown. The good news is, home values actually increased in three of the last five U.S. recessions, and decreased by less than 2% in the 4th.
Home prices are still holding pretty steady in 2019 at 4.1% due in part to the low inventory and a high number of first-time homebuyers looking to take advantage of the low-interest rates.
With the economy now flourishing, some wonder how much of an effect it will have on real estate. Fortunately, we have some history we can refer to. There are a few things we can keep in mind.
There’s good news. Recessions come and go and most economists agree that the next recession will be considerably milder compared to the last. Lending policies have tightened considerably since then and we’ve learned some hard lessons. Economists believe that subprime mortgages will not be a significant factor next time around.
The chief economist for First American Financial, Mark Fleming states, “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.”.
The Ebb & Flow Of Housing Markets
Although housing is not expected to be a significant contributor to the next recession, some markets will get hit more than others. The housing market as a whole is largely pushed and pulled by demand. When inventory is low, demand is high and vice versa. When demand is high, prices go up.
Likewise, when there is too much inventory and not enough demand, home prices drop. We’ve already started to see a soft slow down in the level of demand across some parts of the USA while other areas still remain high.
The housing crisis in the Great Recession (2007-2009) was fueled heavily by the fact that job loss was paired with a high percentage of homeowners who didn’t have much equity in their homes.
The Great Recession was the trifecta of recessions with global economic collapse, stock market crash, and the sudden mass unemployment all hitting at once. So even if home values experience a dip on a national scale due to a slowing economy, a slight drop wouldn’t instantly lead to foreclosures.
How To Prepare For The Next Recession
Most homeowners today, have since refinanced their mortgages and locked in at today’s low rates for the next 30 years. Today’s homeowners are enjoying a respectable level of equity.
At these low rates and comfortable mortgage payments, homeowners are in a very good position to simply ride out the next recession which is predicted to be relatively mild.
The Federal Reserve announced in March that it plans to keep the federal funds rate at 2.5% for the remainder of 2019. So if you haven’t yet financed, now is the time to do so. Lowering your mortgage payments even by just $200 a month could give you some needed breathing room in the long run.
Freddie Mac reported at the end of May that the average 30-year, fixed-rate mortgage interest rate fell to 3.99% at the end of May, which is the first time it has below 4% since January 2018.
Saving for a rainy day is an old adage but definitely, a wise thing to follow. Start putting aside enough cash reserves to cover you for at least six months just in case you lose your job.
Overall, in the same survey, these same experts who forecasted a recession happening within the next 18 months also believe that housing will not be what triggers the next recession. They also say the next recession will be mild and that home values will still continue to appreciate.
Even if some kind of recession does come around, home values will still continue to appreciate. It will not be a repeat of the crash in the 2008 housing market.
Your Two Cents
Now it’s time to leave your comments and questions below. I’m happy to answer them to the best of my ability.