Is a Housing Recession Coming?

Posted

Let’s get the question out of the way up front.  A housing recession is probably not coming soon.  More likely is that a recession is coming, and experts predict late 2019 and early 2020.  According to KCM, Keeping Current Matters, a real estate newsletter, this is when the recession is coming.

The good news is that the consensus among numerous experts is that housing will be far down the list of industries causing the next recession.  The top items that may trigger the next recession include political policy or trade policy.

The current economy is very healthy, with unemployment numbers low, trade is doing well, the dollar is strong, the economy grew at 4% last quarter, and corporate profits are high.  Factors that have many experts concerned, and we should note that the experts have been predicting a recession for the last couple of years – hasn’t happened yet -  include: uncertainty with international trade due to tariffs; the US central bank may raise overnight borrowing costs and experts will be interested in the reaction of the bond market; and according to Yahoo! Finance, “The current economic expansion just entered its 10th year, which is twice the average length since 1945. We’re due for a recession.” 

In a recent article in Forbes Magazine,”Though the world economy is still experiencing a lukewarm expansion, growth is no longer synchronized,” Nouriel Roubini, an economist at the Stern School of Business at New York University known for forecasting the bursting of the housing bubble before the Great Recession, just wrote.  “Economic growth in the Eurozone, the United Kingdom, Japan, and a number of fragile emerging markets is slowing. And while the U.S. and Chinese economies are still expanding, the former is being droven by unsustainable fiscal stimulus.”

Among the reasons the housing market will not be a trigger, according to many experts, like it was in the Great Recession in 2008, is that lending practices today are much more stringent than they were prior to the real estate crash.  According to experts at KCM, banks are writing loans with stricter guidelines than at historical norms.  Previous to the crash, people were giving false income information and getting loans approved, whereas today banks are asking for proof of income in the forms of bank statements and tax returns and other documentation.

What many experts suggest is if one is in the market to buy a home, or even sell a home, don’t worry about a coming recession.  Interest rates are still low, although a year from now most experts predict interest rates moving up to 5.5% or so.  Also, the experts are saying that even if/when a recession comes, the housing market will not suffer too badly, they are saying that home appreciation will slow down.  Prices will continue to rise, just at a slower rate than the current 5% or so national rate.  Home value appreciation, according to the experts, may slow to about 3%. 

According to KCM, many buyers who hesitated to make a buying decision in 2009-2011, may have lost money because of the rapid recovery of prices after the crash.  Home prices today are more or less recovered to the pre-crash level so that those who bought homes shortly after the crash benefited from the rapid appreciation in the couple years after the crash.

The long and short of it is that when the next recession comes, most experts feel that housing will not be the trigger, and in fact housing should withstand an economic downturn because of the safeguards in place now, especially in the banking industry, that were not in existence ten years ago. Feel comfortable moving forward on your new home purchase, or selling your current home and finding your move up or you downsize home for the future.