How Does Recession Affect Housing?

This article was originally published June 27, 2020.

The definition of a recession is if you have two negative quarters in the GDP (Gross Domestic Product). The first quarter was negative. As I write this, we are about to end the 2nd Quarter and we will be negative as well so on July 1, 2020 we will officially be in a recession.

So how does this affect housing? During the last 5 recessions, housing prices went up 3.5% to 6.6% during the recession. The years were 1980, 1981 and 2001. In 1991 we had a recession and housing prices dropped just 1.9%. Of course, the one in most recent memory is 2008 and we lost 19.7% in housing value during that time.

Today is a much different time than 2008. Back then the housing market and the mortgage markets caused the recession itself and things were a real mess. The run up to that recession had people leveraging their homes to the hilt and buying more homes as if up was the only way to go. In the 6 years leading up to that recession we had appreciation from 6.5% up to 12.5% per year and we were riding high. Nationally, there was not a lot of equity to fall back on and that coupled with the large depreciation really hurt.

In the 11 years since that recession, we have seen housing prices come back but in a much more healthy way and we have seen appreciation average just under 5% annually. After we had the large correction in values and all of the foreclosures, we are currently sitting on a lot more equity as a nation. We currently have 26.7% of households who have more than 50% equity in their homes and 37% of homes nationwide are owned free and clear.

I am seeing a lot of pent up demand from buyers who have been cooped up in their houses who want to spread out a little and find their dream home. Housing inventory is still low. I am hoping that people who want to move will look at the equity build up and realize now is a good time to sell and put their homes on the market. This will equalize the housing market and allow us to have growth but keep appreciation at moderate levels. Now is indeed a great time to buy but it is also an excellent time to sell.

The unemployment numbers have absolutely spiked due to CV-19 but they are expected to be getting better rapidly as well. The economy was robust before the pandemic and we are going back to that economy when we start to achieve our new normal. Mortgage rates are at historic lows from the mid 2’s to the mid 3’s and we see them moving up in a healthy way towards 4% mark in 2020.

I believe there are a lot of positives to come out of this pandemic. More people will be working from home and less business travel will be the new normal which will reduce our carbon footprints and allow us to be more productive. At the same time, I believe we can all see the value in human interaction. Zoom meetings are great but face to face meetings and human touch is something that is vital to our well-being.

Be good to each other out there.

Need to know more? Please send me your real estate and mortgage related questions. I am happy to answer you and it may become the topic of a future article.

Hans Bruhner (NMLS 243484) is a Mortgage Advisor for Finance of America Mortgage (NMLS 1071). Both are licensed by the Department of Business Oversight under the CRMLA. If you have a question, please contact Hans at (707) 887-1275 or hans@hansblog.com.