The percentage of economists who believe that a recession will occur in the next 12 months is growing, according to a recent survey from the Wall Street Journal.
In July 2021, only 12% of economists surveyed thought that there would be a recession by this time in 2022. When polled again this past July, 49% of respondents believe that a recession will occur in the next 12 months.
The reasons for this change in opinion are varied, but most experts agree that the current economic conditions are ripe for a downturn.
Though recessions can be scary, especially when considering a large purchase like a home, it’s important to remember that real estate is historically a fairly recession-proof investment. So while stock prices and other investments may see more volatility during an economic downturn, real estate tends to be much more stable.
For those who are looking to buy a home in the near future, a recession may actually present an opportunity. A slowdown in the housing market can mean there are fewer buyers competing for properties, which could lead to lower prices.
So while a recession may be cause for some anxiety, it doesn’t necessarily mean that homeownership is out of reach.
A Recession Doesn’t Mean a Decrease in Home Prices
Home prices have appreciated in four of the last six recessions. So, historically, when the economy slows down, it doesn’t mean home values will fall. There are a number of factors that contribute to this.
First, recessions tend to be relatively short-lived. Home prices may dip in the early stages of a recession, but they generally rebound as the economy begins to improve.
Second, many people view a home as a long-term investment. Even if they experience financial difficulties in the short term, they are typically unwilling to sell their home at a loss.
Finally, there is always a demand for housing, regardless of economic conditions. People will always need somewhere to live, and this creates a built-in floor for home prices.
Consequently, while recessions can be difficult for homeowners, they generally don’t have a significant impact on home values.
A Recession Means Decreased Mortgage Rates
Research also helps paint the picture of how a recession could impact the cost of financing a home. Historically, each time the economy slowed down, mortgage rates decreased.
This is because during a recession, people are generally less confident about their future income and employment prospects and banks become more conservative in their lending. As a result, demand for loans decreases, and mortgage rates fall.
Of course, the reverse is also true – during periods of economic growth, mortgage rates tend to rise as demand for loans increases. However, it’s important to remember that these are general trends – there is no guarantee that mortgage rates will always follow the ups and downs of the economy.
By understanding how the economy can influence loan demand and interest rates, you can make more informed decisions about when to buy a home.
Making the Right Decision
Although a recession may mean difficult times ahead for some businesses, it could present opportunities in the housing market.
If you’re thinking of buying or selling this year, contact me to discuss what these changes could mean for you.