Why a Recession Doesn't Equal a Housing Crisis

Historic patterns show one doesn’t always mean the other

The one thing every homeowner these days needs to realize is that an economic recession does not equal a housing crisis. With the long, ongoing increase in home prices, low mortgage rates, tight inventory and general inflation some experts feel that we could be heading towards a recession but if true, this economic slowdown does not mean homes will lose value to the point of a housing crisis. 

The National Bureau of Economic Research defines a recession as: “A 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.”

To help illustrate a picture of how home prices are not always affected during recessions we can look at some historical data over the years. There have been a total of 6 recessions in the United States in the past 40 years. During recessions in 1980, 1981, 2001 and 2020 homes had appreciated while only in 1991 and 2008 did they depreciate. During the recession of the early 1990’s home prices dropped by less than 2% which was fairly insignificant. People may more vividly recall the recession of 2008 and feel that this same thing may happen again as it was more recent. However, that market was very different than it is today. For one, lenders created fake demand by loosening up necessary qualifications for mortgages where many obtained them when they shouldn't have. Also, many homeowners were treating their homes like personal ATM’s and pulling out all of their equity to purchase high priced items like cars, boats or second homes. When prices dipped they found themselves upside down leading to foreclosure. The large amount of foreclosures only fueled the decline of home prices. 

Ultimately if you examine the data, should we be heading towards a recession the history proves that it does not equal a housing crisis.