With over 90% of Americans now under a shelter-in-place order, many experts are warning that the American economy is heading toward a recession, if it’s not in a single already. What does which means that to the residential real estate market?
What is really a recession?
According to the opens in a new windowNational Bureau of Economic Research:
“A recession is really a significant decline in economic activity spread over the economy, lasting lots of months, visible in real GDP normally, real income, employment, commercial production, and wholesale-retail product sales.”
COVID-19 hit the pause button on the American economy in the center of March. Goldman Sachs, JP Morgan, and Morgan Stanley are calling for a deep dive throughout the market in the next quarter of the year. Though we might not yet maintain a recession by the technical definition of the term today, most believe history will show we were in a single from April to June.
Does which means that we’re headed for another housing crash?
Many fear a recession means a repeat of the housing crash that occurred through the Great Recession of 2006-2008. Days gone by, however, shows us that a lot of recessions usually do not adversely impact home values. Doug Brien, CEO of Mynd Property Management, opens in a new windowexplains:
“Apart from two recessions, the fantastic Recession from 2007-2009, & the Gulf War recession from 1990-1991, no other recessions have impacted the U.S. housing marketplace, in accordance with Freddie Mac Home Price Index data collected from 1975 to 2018.”
CoreLogic, in another study of the opens in a new windowlast five recessions, found exactly the same. Here’s a graph of these findings:
What will be the experts saying this time around?
This is what three economic leaders say about the housing link with this recession:
“The housing sector enters this recession underbuilt instead of overbuilt…That means because the economy rebounds – which it’ll at some stage – housing is defined to help lead just how out.”
“Last time housing led the recession…This time it’s poised to create us out. This is actually the Great Recession for leisure, hospitality, trade and transportation for the reason that this recession will feel as bad because the Great Recession did to housing.”
John Burns, founder of John Burns Consulting, also revealed that his firm’s opens in a new windowresearch figured recessions the effect of a pandemic will not significantly impact home values:
“Historical analysis showed us that pandemics are often V-shaped (sharp recessions that recover quickly enough to supply little harm to home prices).”
If not in a recession we’re yet, we’re going to be in one. This right time, however, housing would be the sector leading the economic recovery.
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