Deutsche Bank caused a stir in April when they became the first major bank to forecast a US recession. Today, they’re standing by that prediction more than ever as the Federal Reserve continues on its quest to knock down inflation through rising interest rates.
We know that the word “recession” is typically met with a grimace, especially when paired with the housing market. However, let’s take a closer look at the definition of recession. A recession is 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.
The definition does not say anything about a housing market crash. A recession does not mean that the market is a bubble that’s about to burst. It does not mean that you should give up on your buying or selling goals. It does mean that there are unique opportunities out there for those who know how to navigate the current market conditions.
Today we’re taking a closer look at what a recession means for the housing market and what it means for your real estate goals.
Where We’re At
Imagine you’re driving on the highway, doing 90 mph in a 65 mph zone. You’re flying down the road with the music on and the windows down. Suddenly you hear sirens and see those blue flashing lights coming up behind you. You start looking around, your heart speeds up again, and you drop your speed from 90 mph to 75 mph. You’re still speeding, but it feels very slow compared to the speed you were going. You’re more alert to what’s going on, getting ready for the inevitable speeding ticket.
When the cop approached you, much to your relief, he goes around and continues down the road.
That is the market right now. We’re been driving 90 mph the past couple of years. However, over the past few weeks, we’ve essentially hit the breaks as a response to the recent market shifts, and while we’re still speeding, it feels like we’ve gone from flying down the road to moving at a snail’s pace. When in reality, homes simply shifted from 7 days to 10 days on market, for many this feels like a giant leap and change.
Let’s not beat around the bush. We’re headed towards a recession. It’s a big, scary word that many people shy away from. However, since 1980, we’ve seen 6 times of recessions, and during 4 out of 6 of those times, home prices continued to increase.
Keep in mind that in 2008, there were fundamental differences between the housing market then and now. It should not be assumed that we are heading down the same path.
This goes directly into something that we hear very often, “I’m going to wait for the market to crash and wait for prices to go down.” If you look historically, since 1993, we have had 8 different instances where interest rates have gone up very quickly, more than 1%, in a short time. During these instances, we were also facing increased appreciation. In every one of these instances, home prices have gone up.
Now, let’s look conversely at sales. All of these different times, sales have decreased. It’s the same thing that we’re facing now. In MA & NH, we’re down when it comes to sales. We have 20% fewer sales than we did last year, yet prices are still going up.
What we’re going through is no different than what we’ve experienced before. It feels different because many of us haven’t gone through this at all when it comes to buying or selling.
What Does This Mean For You?
One thing that we hear all the time is, “I’m going to wait for the market to crash.” How do you know it’s going to crash? What if it doesn’t? If you’re renting, the only thing going up faster than appreciation and interest rates is your rent rate. Either way, you’re paying a mortgage. Are you paying your mortgage or your landlord’s mortgage?
Regardless of what the market is doing, if you’re going to buy a home, the number one reason you buy a home is to improve the quality of your life. When you’re evaluating if you should buy or sell now, think big picture. Is my home going to be more improved by staying in my rental or family home or by purchasing a home that you can then gain appreciation and equity in?
Remember, you’re not buying the market, you’re buying the asset. If you’re looking to buy or sell, go out and talk to your agent. Don’t just assume that because rates will go up, prices will go down. Experts predict home will appreciate through 2026. Indeed, they won’t appreciate at the rate we saw last year, but prices aren’t expected to go down.
The word recession is an inherently scary word that causes many people to think the worst is bound to happen. If you’re thinking about buying or selling, thoughts of a repeat of 2008 are bound to enter your head. We’re here today to point out that you don’t have to be afraid of a recession. It happens and has happened, multiple times without causing home prices to plummet. Instead, it’s a great opportunity for you to speak with an expert in the real estate industry to get a better understanding of what it means for your real estate goals. There is opportunity out there for those who are willing to take the time to truly understand what’s happening in the market and how to take advantage of it.