How a Recession Doesn't Always Mean a Housing Crisis

The one thing every homeowner today should realize is that a recession does not equal a housing crisis. With the long trend of the increase in home prices, low mortgage rates, tight inventory and general inflation some experts warn that we could be heading towards a recession soon but if true, this economic slowdown does not mean homes will lose value. 

The National Bureau of Economic Research defines a recession as: “A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.”

To help identify how home prices are not always affected during recessions we can look at some helpful data. There have been 6 recessions in the United States over the past 40 years. During recessions in 1980, 1981, 2001 and 2020 homes had appreciated in value while only in 1991 and 2008 did they depreciate. During the recession of the early 1990’s home prices dropped by less than 2%. Perhaps people more clearly recall the most recent recession of 2008 and feel that this same thing may happen again. However, that market was very different than the market conditions today. For one, lenders created artificial demand by loosening up the necessary qualifications for mortgages with many obtaining them when they shouldn't have. Also, many homeowners were treating their homes like personal ATM’s and pulling out all of their equity to buy big ticket items like cars, boats or even second homes. When prices dipped they found themselves upside down leading to foreclosure. This large amount of foreclosures flooding the market only fueled the decline of home prices. 

In the end if you examine the data, should we be heading towards a recession the history proves that it does not always equal a housing crisis.