A recent survey in the Wall Street Journal indicates that more and more economists believe that we are heading for a recession within a year. In the last survey in July 2021, only 12% of economists predicted that there would be a recession in the next 12 months. This July, that figure was up to 49%.
As the likelihood of a recession increases, people start to wonder whether they should postpone plans to buy a home, or whether they should go ahead.
Let’s explore the real estate market and why you shouldn’t be afraid of recessions.
Recessions Are Not a Sign of Falling House Prices
Data shows that house prices do not drop every time there is a recession.
During the 1980/ 1981 double-dip recession, house prices rose by 6.1% and 3.5% respectively. In the 1991 recession, house prices fell by around 1.9% and during the recessions in 2001 and 2020, house prices rose by 6.6% and 6.0%. In the 2008 financial crisis, the prices of homes dropped by a whopping 19.7%. Still, that recession was brought about by homeowners who had borrowed more than they could repay.
Historically, a slowing economy doesn’t always have a negative impact on property prices.
Most people believe that another recession will result in a repeat of what occurred during the housing crisis of 2008. However, a decline in the housing market is not likely at this time. The current situation is very different to the circumstances in 2008.
Recessions Are a Sign of Falling Mortgage Rates
In the 1980 and 1981 recession, mortgage rates fell to 4.25% and 5.00%. In 1991 the rate fell to 2.25%, whilst in 2001 it reached 0.63%. Furthermore, in the years 2008 and 2020, the rates dropped to 1.13% and 1.00%.
These figures illustrate that mortgage rates generally drop in an economic slowdown.
The Bottom Line
Undeniably, every individual remembers the financial fallout of 2008. The data reveals that during a recession, property prices have not always declined but mortgage rates have.
If you are wondering whether to purchase or sell a home, hire a reliable and professional real estate agent like Levin Rinke. With our in-depth understanding of the market, we can help you to make the best decisions and keep you informed of the current conditions in the housing market.