If you are old enough to remember the news from 2008, you probably remember how the housing crisis absolutely pummeled home builders, home owners and all the various trades related to home building.
In the years leading up to the housing crash of 2008, mortgage lenders reduced their stringent lending requirements, causing literally millions of homeowners to default on their home loans when the owners could not make their payments. Over 3 million homes were foreclosed that year.
Home builders went bankrupt or dramatically reduced their home production. Since that time, the supply of new homes has trailed behind the needs of home buyers. This lack of supply, coupled with Covid and other factors, resulted in home prices rising rapidly for the last couple of years. Demand has exceeded supply and buyers have been desperate to find a home they could afford.
Inflation has affected not only home prices, but general goods, and this has sparked fears of recession. Many pundits are predicting a dramatic downturn in the housing market, with predictions of declines similar to those of 2008.
But is it a fair assumption that recession necessarily means that home prices will fall?
In this video, Greg Kurzner talks about our current real estate market, recession, and what it all means to both buyers and sellers. Watch the video and read the transcript below…
Hey, it’s Greg Kurzner with The Kurzner Group. Just a quick video to answer the question, “Is the housing market going to crash?” Well, first of all, let’s acknowledge the 800 pound gorilla in the room. Yes, the real estate market has shifted in the last couple of months, and it’s changed pretty dramatically. Sellers were already asking crazy prices for their houses.
This was driven by a lack of homes on the market, plus pent-up demand that started during the Covid shutdown. Buyers have been competing for a very small number of homes. And when interest rates began rising, this increased cost was the tipping point for many buyers. They were already overbidding for houses. Now, overnight, because of interest rate increases, home prices simply made buying out of reach. Some buyers stopped looking completely and took themselves out of the marketplace.
And now, sustained inflation and fears of recession are on everyone’s mind. The sky is falling according to many pundits. Many have predicted that home prices are ready to plunge. Are we about to see big drops in home prices?
Well, let’s pause for a few minutes and take a deep breath and let’s look at recent history. This graph shows the last six recessions in the United States.
You can see that in only two of those last six recessionary periods, homes lost value. Another way to put this, four out of the last six times, home prices went up.
The recession in 2008 was also when the housing crash occurred. One reason for this crash was that lending practices at the time caused many homebuyers to get in over their heads. Since that time, lending requirements have become much more stringent, making it tougher for homeowners to get in a position where they can’t afford their payments. And this time around, because home prices have risen substantially in the last couple of years, most homeowners now have enough equity in their homes that, should they be unable to afford their payments, they can still sell their home and come out without having to go through foreclosure or short sale.
So the bottom line is that home prices are not likely to begin dropping dramatically. The crazy rate of price appreciation we have seen over the last couple of years will slow down to more normal levels.
For sellers, you’ll have to have a bit more patience when selling your home. Getting a signed contract in 24 hours after going on the market may not happen as often. And having 20 people bid on your home at the same time is probably a thing of the past. But homes are still selling.
For buyers, you now have more homes available for purchase. The number of available homes has been increasing since January of this year. You can expect to find more homes and at more reasonable prices, without having to compete with 20 offers. In other words, it’s not a time to panic. No matter whether you are a buyer or a seller. So if you’re thinking about buying or selling your home, don’t wait. The time is right for either buyers or sellers.