Recession on the Horizon? How the Housing Market Will Fare | Guest Post
“The Great Transition” isn’t a tagline that’s probably taking off any time soon but as we look at the landscape—especially the real estate market—that’s exactly what we’re seeing. We’re transitioning into a world that lived through the pandemic and all the ways that has affected us.
From how we spend our money to where we live, things are changing. According to a recent study, consumers spent 18 percent more in March 2022 than they did in the two years prior—which is 12 percent higher than forecasted before COVID-19. With the demand for remote work increasing, the USPS reported that 15.9 million people moved during the pandemic. With inflation raising the price of everything from transportation to rent, these transitions are leading us into a challenging economic time.
With a recession on the tip of every economist’s tongue, forecasts and predictions are looming. Think-pieces on what effects it may cause and what recessions have looked like before are everywhere. To be clear, we’ve seen all kinds of recessions in the past: a recession that led to the Great Depression, the one with the dot-com bubble burst, but the only one anyone remembers is the last one: the Great Recession and the accompanying housing crisis.
As we look to the past to determine the future, most of the fear comes from the last recession being caused by the housing market—and the ripple effects on the sector still being felt today. Housing caused the last recession, not the other way around, so many are expecting the same this time. However, history shows that to be unlikely. I’m optimistic that with planning and nimbleness, the housing market and real estate experts are primed to lead consumers through whatever comes next.
Recession and the housing market: Not all bad
The transitional housing market we’re seeing right now has a clear supply and demand problem. The inventory of active home listings in the Denver area fell more than 60 percent during the pandemic, so there has to be a reset in order to reduce the gap. While we are seeing slightly more inventory, some homes still have 8-10 offers over asking, and some sit on the market with none.
Buyer demand is currently high but is easing due to unaffordability and buyer fatigue. The cost of living is high, and the Federal Reserve is trying to ease buyer demand by raising prices and rates. The Fed says they’ll combat inflation and cool down the economy by raising interest rates five more times through the end of the year.
The economy is like any balance sheet—when we spend more than we earn, it becomes recessionary. But when we look at the housing market, it’s unlikely to ‘pop’ like we’ve seen in the past because of an influx of millennial homebuyers. Unfortunately, there will still be problems getting homebuyers to invest.
Here are a few opportunities we can be optimistic about with a potential recession:
- When interest rates are lower, more people can qualify for home financing—whether that’s purchasing or refinancing. More buyers mean more sales.
- Equity will continue to increase, creating a strong housing market as many homeowners may decide not to sell. If we can be thankful for anything the last two years gave us as homeowners, it’s equity.
- The market leading up to a recession will slow down buyer demand to allow the supply to catch up which is very necessary. At the end of March, the National Association of Realtors® reported there was only a two-month supply of available homes on the market—in comparison to an equalized market that normally has a four- to six-month supply.
- Besides 2008 and 1960, recessions have been good for the housing market. Because of lower interest rates and fewer sellers, they continue to provide steady appreciation of home values.
The reality will obviously cause many negative effects, as jobs are lost and layoffs occur, however, with today’s equity and over 11 million job openings, this recessions layoffs are opportunities for those individuals to sell at a market price and move to where jobs are located and possibly homes are more affordable. Recessions are often thought of as cleansing for the economy, which can feel daunting, but there are ways to prepare.
Recessions are not something to fear, they are something to prepare for
Working in the real estate market means we’re used to being nimble. We are able to react to a changing market, listing demands and customer needs—whatever we encounter. With a likely recession coming, we’ve been given notice and we know it’s coming. Although we might not know what it will look like, we can prepare ourselves and our clients. Moving beyond the fear of what a recession may mean and into a realistic plan is key.
Most of life revolves around seasons and cycles and they’re always changing. Remember, a recession will never be forever. In fact, on average they last 15 months and in February of 2020, economists noted we were overdue for a recession by 6 years. Remind yourself and your clients that opportunities present during a downturn. Showing clients how to make it through the current state in order to optimize their future requires calculation and a willingness to capitalize on real estate to build generational wealth.
The views, opinions and positions expressed within this guest post are those of the author alone and do not necessarily represent those of the Denver Metro Association of Realtors®. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.
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