We are currently in the longest economic expansion in American history which raises the question when will the next recession hit? According to Fortune, 60% of economists think it will happen in 2020. With the housing market crash that came with the Great Recession, the concern of it all happening again and impacting real estate is a valid one. However, taking a look at the history of recessions leads most to believe that another housing market crash is very unlikely.
HISTORICAL RECESSIONS
For starters, the Great Recession was named so because it was so big. Most recessions in history are mild and short-lived. ATTOM Data Solutions looked at home prices during 5 recessions since 1980 and found that only during 2 of them did home prices come down. In the other 3, home prices actually went up. Experts believe the next recession will most likely be caused by trade policy, stock market corrections and/or geopolitical crisis which is a far cry from the lending policy and financial issues that contributed to the Great Recession. Usually, the housing market aids in the recovery of the economy during a recession. It's fair to say most homeowners will stay in their current home during uncertain times and potential job loss that can come with a recession. There could certainly be a drop in demand for housing but not the events we saw happen before. Recessions are generally triggered by market excess and the housing market has no indication of excess during the current cycle. In fact, the real estate market is more likely undersupplied than oversupplied. This, of course, varies in different cities but is certainly the case in Bozeman. If there was a recession in the near future and country saw a drop in home prices is would be unlikely to see a large number of foreclosures.
Looking back, there have been no events that have influenced the real estate market as much as the Great Recession. From the mid-1990s to around 2005 the average price of housing went up 124% nationally (Investopedia.com) which was a warning sign. Add this to the loose lending practices and subprime mortgages during the time it was inevitable that the bubble would burst. When it did there was a huge depreciation in home value, dropping below what people had borrowed while at the same time the interest rates spiking on the subprime mortgages all leading to the market crash. With subprime mortgages a thing of the past and low-interest rates, the real estate industry has stimulated economic growth. With the reduced interest cost people now have more access to capital to reinvest back into the economy. If home values drop due to a recession, most people would already have equity in their homes and can more easily handle the decline.
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