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Recessions and their impact on housing prices in the United States

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Recessions and their impact on housing prices in the United States,

The United States faced many economic changes in 2020, unemployment broke records in April 2020.

Unemployment reached 14.8%, around the same time that financial markets were at their lowest levels in years.

The economic recession in 2020 may call to mind the sharp increases in foreclosures and the decline in home prices from 2007 to 2009.

But it seems that this time, things may be a little different for the real estate market.

Home prices in the doldrums

The United States has experienced many recessions over the years, the worst of which was the Great Recession from 2007 to 2009.

At that time, home prices fell across much of the United States and unemployment rose, with many current homeowners finding themselves underwater in their mortgage loans.

The Federal Reserve provides a look at how home prices have performed during the past three recessions.

Only significant shift was seen in the Great Recession, price changes in the 1991 and 2001 recessions were more muted.

The current housing situation

Conditions may be different this time, compared to the Great Recession,

which could shield housing (and its prices) from a major crash.


Recessions and their impact on housing prices in the United States
Recessions and their impact on housing prices in the United States


Three factors help us see why the housing market is staying strong.

  1. The supply is short and the demand is high

While construction was booming, there was a glut of housing stock, which drove prices down.

After the Great Recession, the number of listings across the country is very limited,

as well as strong demands from buyers, which are enough to raise prices, even during a recession.

     2. More stringent lending criteria

Loose credit standards in the early 2000s left many people with mortgages they could not afford.

That situation then unraveled into a spike in foreclosures across the country.

Lenders have ramped up their qualification requirements since then – and especially this year – so a similar drop is unlikely.

     3. Interest rates are still low

Mortgage rates were hovering around 6% at the start of the Great Recession, and this made homeowners pay off their loans and build equity.

Although rates have changed a lot since then, they reached record lows in 2020,

and the average mortgage rate is now 2.87%, for a 30-year period as of September 2021.

Experts largely expect housing to weather the storm, and a Freddie Mac forecast released in April 2021 pointed to higher home prices (6.6% year-over-year and 4.4% in 2022),

as well as persistently low mortgage rates.

What does high unemployment mean for home sales

High unemployment is one of the things that could be a problem for the housing market during this recession.

It can reduce people’s ability to buy a home, thus increasing demand even more, and it may also make it more difficult to qualify for a mortgage.


Recessions and their impact on housing prices in the United States
Recessions and their impact on housing prices in the United States


Construction slowdown and its impact on housing

Construction was booming before the Great Recession,

with housing starts hitting their highest level in nearly two decades in 2006, before the economy took a turn for the worse.

New homes are now being built at a much slower pace, and according to the Census Bureau,

building permits, home construction, and home completions decreased in April 2020, compared to March and on an annual basis (YOY).

The beginning was in fact less than a quarter of the month,

and this indicates that these low supply conditions may continue for a long time, and the housing units begin to be completed in about 7 months

Even in 2021, supply has stopped, prices will likely continue to rise, and more potential buyers are still arriving in the market.

Data from the Mortgage Bankers Association shows that new mortgage loan activity rose more than 30% year-over-year in April 2021.

Bottom line

The recession touches every aspect of the economy, and housing is no different,

so does that mean another bust is in the cards? Probably not. Home prices may continue to rise, despite all the bad economic news.

When is the house price going down again

It is unpredictable when home prices will fall, but price increases appear to be slowing in the summer of 2021,

and many experts predict a slowdown in demand and an increase in inventory in 2022, which means that prices will at least slow.

Factors affecting housing prices

Home prices are the result of a complex mix of factors, which makes it difficult to perfectly predict how they will move. Factors include things like income levels, tax incentives, inventory levels, material costs, and investor behavior.

House prices vary across different cities

Market conditions vary greatly from city to city and even across different neighborhoods within one city due to many factors, including different social and economic conditions, increased or decreased demand for housing in certain areas, and proximity to goods, services and entertainment.

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