As the major market indexes continue their downward trajectory and inflation creeps up despite swift rate increases by the Federal Reserve, many Americans are left wondering when we will officially enter recession territory and how it will affect their near-term futures. More specifically, many potential home buyers and sellers are wondering how the housing market will be affected by the looming economic contraction. Today we’re exploring the market internals and explaining the connection between recession and housing, and how it could affect your decision-making.
The first, and likely most important, point to make is that home prices rarely decline during recessions. There have been six recession in the last four decades and homes prices dipped during only two of them. The most notable decline in home prices came during the Great Recession of 2007-2009, when home prices dipped 19.7% on average nationwide. The only other occurrence, however, was in 1991, when home prices declined by a mere 1.9%.
In fact, home prices have actually increased during four of the six recessions since 1980. So if you’re considering purchasing a home in the near future, know that there’s a good chance you’ll be doing so during an economic downturn – but that doesn’t mean you should wait. In fact, recessions can actually present a unique opportunity for would-be home buyers. In times of recession, mortgages rates tend to decline, and inventory levels can rise as many people look to downsize or move to a different area as their lives enter a new chapter and bring new opportunities.
The bottom line for home buyers: If the possibility of a recession makes waiting to purchase seem like the prudent strategy, that data shows the opposite to usually be true. And with demand already outweighing supply in the North Texas area, prices could continue to climb at above average rates even during an economic downturn.
Sellers looking to move need not be afraid of selling during a recession either. In fact, if you’re considering a move in the near future, it may behoove you to act sooner rather than later. The data shows that home prices have increased during four out of the last six recessions – meaning there’s a good chance your home will be worth more in a recession than it is right now. And while the fear of fewer buyers and lower offers may spook some would-be home sellers during an economic contraction, it’s important to have some serious perspective around where the market is and where it’s been.
While homeowners looking to sell in 2023 may not be in the same market environment as those in early 2022, with dozens and dozens of offers all well over asking price, they receive the same benefit when it comes to their value and equity position. All of the 2022 sales set the benchmark for home valuations going forward, so while the number of offers may decrease, the market value of the home is still going to be on par with, or even more than, the prices of homes sold in the current, intense environment.
Given the current state of the market, it’s likely that we’re closer to the peak than the trough – so if you have any thoughts of selling in the near future, now may be the time to do so.
Of course, every recession is different, and the effects on the housing market can vary depending on the severity of the economic downturn. But if you’re considering buying or selling a home in the near future, don’t let the possibility of a recession scare you off – the data shows that it could actually be to your benefit. It’s also true that North Texas is a highly localized market that hasn’t traditional mirror broader economic trends. While such a business-friendly environment and strong local economy, North Texas was hit nearly as hard as other areas by previous recessions and may actually attract another large population surge as people escape less affordable areas and relocate. It’s entirely possible that a recession may continue to heat up an already scalding local housing market.
One thing is certain, as North Texas continues to grow, it’s beneficial to own hard assets such as real estate as a wealth building staple, especially in times of economic slowing. If you’re looking for a premier management company that will maximize your returns in all market environments, give Homeward Property Management a call today at (469) 649-7666!
GET A FREE RENTAL ANALYSIS
Let our experts analyze your rental property and provide a completely free report.