A recession does not equal a housing crisis. Thatโs the one thing that every homeowner today needs to know. Everywhere you look, experts are warning we could be heading toward a recession, and if true, an economic slowdown doesnโt mean homes will lose value.
Theย National Bureau of Economic Researchย (NBER)ย definesย a recession this way:
โA 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.โ
To help show that home prices donโt fall every time thereโs a recession, take a look at the historical data. There have been six recessions in this country over the past four decades. As the graph below shows, looking at the recessions going all the way back to the 1980s, home prices appreciated four times and depreciated only two times. So, historically, thereโs proof that when the economy slows down, it doesnโt mean home values will fall or depreciate.
The first occasion on the graph when home values depreciated was in the early 1990s when home prices dropped by less than 2%. It happened again during the housing crisis in 2008 when home values declined by almost 20%. Most people vividly remember the housing crisis in 2008 and think if we were to fall into a recession that weโd repeat what happened then.ย But thisย housing market isnโt a bubbleย thatโs about to burst. The fundamentals are very different today than they were in 2008. So, we shouldnโt assume weโre heading down the same path.
Bottom Line
Weโre not in a recession in this country, but if one is coming, it doesnโt mean homes will lose value. History proves a recession doesnโt equal a housing crisis.