Realtor.com released the results of a survey about home buyers expecting a recession in the next three years. Nearly 56 percent of the home buyers surveyed said that if it hits, they would stop their search for a new home until the economy improved. Other results from the survey included three major revelations:
- 53% of home buyers currently in the market for a new home believe a recession will occur this year or next.
- 57% believe the next recession will be as bad or worse than in 2008.
- 55% said they would cancel plans to move if a recession occurred.
Since we are currently experiencing the longest-ever economic expansion in American history, there is a reason to believe a recession could occur in the near future.
Economists Voice their Opinion on the Housing Market
Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview. She said, “With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”
Most experts, however, believe if there is a recession, it will not resemble 2008. This housing market is in no way the same as it was just over a decade ago.
Zillow Economist, Jeff Tucker, explained the difference in a recent article about Recessions Typically Have Limited Effect on the Housing Market. Tucker stated, “As we look ahead to the next recession, it’s important to recognize how unusual the conditions were that caused the last one, and what’s different about the housing market today. Rather than abundant homes, we have a shortage of new home supply. Rather than risky borrowers taking on adjustable-rate mortgages, we have buyers with sterling credit scores taking out predictable 30-year fixed-rate mortgages. The housing market is simply much less risky than it was 15 years ago.”
George Ratiu, Senior Economist at realtor.com, also weighed in on the topic. He said, “This is going to be a much shorter recession than the last one, I don’t think the next recession will be a repeat of 2008…The housing market is in a better position.”
Remembering 2001 and 2008
In the past 23 years, there have been two national recessions. In 2001, the dot.com business plummeted, and those invested in the stock market saw their portfolio decline. Analytics said that the Y2K scare caused the 2001 recession. As stock prices declined, so did the value of the dot.com companies and many went bankrupt. It was an eight-month economic downturn. It began March 2001 and lasted through November 2001.
The Great Recession sometimes referred to as the 2008 Recession has been linked to the so-called subprime mortgage crisis. It is true that home values fell 19.7%, which was caused by a mortgage meltdown that heavily impacted the housing market.
However, while stock prices fell almost 25% in 2001, home values appreciated 6.6%. The triggers of the economic slowdown will more closely mirror those from 2001 – not those from 2008. Morgan Stanley’s probability of a recession points to only an 11.4% chance of one over the next 12 months.
The October Effect
Since the early 20th century, the month of October has been associated not only with a lower stock market but also bear markets, in which the stock market loses one-fifth of its value or more. Proponents of the October effect, one of the most popular of the so-called calendar effects, argue that October is when some of the greatest crashes in stock market history, including 1929’s Black Tuesday and Thursday and the 1987 stock market crash, occurred.
What is the Bottom Line for Home Buyers?
No one can accurately predict when the next recession will occur, but expecting one could possibly take place in the next 18-24 months is understandable. It is, however, important to realize that the impact of a recession on the housing market will in no way resemble the Great Recession in 2008.
Contact a Real Estate Broker at Wenzel Select Properties to discuss your options for buying a home. As Zillow Economist, Jeff Tucker stated, “The housing market is simply much less risky than it was 15 years ago.”