A general decline in economic downturn results in a recession. Recessions alter the lives of everyone in the country. However, the results of a recession don’t always impact the housing market.
One doesn’t have to look back too far to find the last recession in the United States. The 2008 recession was a dreadful time for millions of Americans. Job shortages and a housing market collapse led to a forgettable economy. Negative economic news in the middle of August regarding tariffs and other things have led to angst regarding potential economic downturn in the United States for 2019. Is a recession coming?
It started when the Dow Jones Industrial Average had its worst day of the year with a plunge of over 800 points. Next came the information that the bond yield curve had inverted, which shows the market moving towards the notion of investing long-term compared to the perceived short-term risk. Economists would suggest this as a signal of a future recession.
The question remains, how will the housing market be impacted? Economic expansion has occurred since the last recession ended in 2009; this expansion has led to many believing a correction is bound to happen, especially homebuyers. Consumer confidence decreased last year.
The Housing Market and Recessions
Recessions may not impact the housing market like the job market and other sectors of the economy. Out of the last five recessions, only two have resulted in housing prices going down: 1990 and 2008. The other three resulted in home prices going up. The inverted yield curve may be a sign that the economy is in trouble, but that doesn’t mean the housing market will face the same issues it did during the last recession.
The last recession was directly caused by the housing crisis. The erosion of mortgage lending standards meant that mortgage bonds–not just limited to the housing sector of the economy–were going to implode. Homeowners defaulted on their mortgages when this happened, thus allowing the housing market to enter into a free fall. Mortgage lending has since become stricter in today’s time.
A recession would have to make a great impact on housing supply or demand. With unemployment rates extremely low and a true undersupply in many housing markets in the country, it would seem unlikely.