As of April 7th, 42 states are recommending residents shelter in place. The New York Times reports that at least 316 million Americans — about 95 percent of the country — have been told to stay home for at least the next few weeks, and likely longer. How will this affect the residential real estate market?
What is a recession?
The ‘textbook’ definition of an economic recession is defined as:
“a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.”
COVID-19 slowed the American economy to a turtle’s pace in the middle of March. Goldman Sachs, JP Morgan, and Morgan Stanley are all calling for a deep dive in the economy in the second quarter of this year. Though we may not yet be in a recession by the technical definition of the word today, most believe history will show we were in one from April to June.
Does that mean we’re headed for another housing crash?
Many fear a recession will mean a repeat of the housing crash that occurred during the Great Recession of 2006-2008. The past, however, shows us that most recessions do not adversely impact home values. Doug Brien, CEO of Mynd Property Management, explains:
“With the exception of two recessions, the Great Recession from 2007-2009, & the Gulf War recession from 1990-1991, no other recessions have impacted the U.S. housing market, according to Freddie Mac Home Price Index data collected from 1975 to 2018.”
CoreLogic, in a second study of the last five recessions, found the same. Here’s a graph of their findings:
What are the experts saying this time?
This is what four experts are saying about the housing connection to this recession:
“While the housing crisis is still fresh on the minds of many, and was the catalyst of the Great Recession, the U.S. housing market has weathered all other recessions since 1980. “In fact, the housing market may actually aid the economy in recovering from the next recession — a role it has traditionally played in previous economic recoveries.”
“The housing sector enters this recession underbuilt rather than overbuilt…That means as the economy rebounds – which it will at some stage – housing is set to help lead the way out.”
“Last time housing led the recession…This time it’s poised to bring us out. This is the Great Recession for leisure, hospitality, trade and transportation in that this recession will feel as bad as the Great Recession did to housing.”
John Burns, founder of John Burns Consulting, also revealed that his firm’s research concluded that recessions caused by a pandemic usually do not significantly impact home values:
“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”
So…what does this all mean?
If we’re not in a recession yet, we’re about to be in one. This time, however, housing will be the sector that leads the economic recovery. Now is the time to educate ourselves to prepare for the months ahead.