Everybody Calm Down This Is Not 2008
Last week realtor.com released the results ofa survey that produced three major revelations:
- 53% of home purchasers (first-time and repeat buyers) currentlyin the market believe a recession will occur this year ornext.
- 57% believe the next recession will be as bad or worse than in2008.
- 55% said they would cancel plans to move if a recessionoccurred.
Since we are currently experiencing the longest-ever economicexpansion in American history, there is reason to believe arecession could occur in the not-too-distant future. And, it doesmake sense that buyers andsellers remember the horrors of 2008 when they hearthe word “recession.”
Ali Wolf, Director of Economic Research atthe real estate consulting firm Meyers Research,addressed this point in a recent interview:
“With people having PTSD from the last time,they’re still afraid of buying at the wrongtime.”
Most experts, however, believe if there is a recession,it will not resemble 2008. This housing market is inno way the same as it was just over a decade ago.
Zillow Economist, Jeff Tucker, explained thedifference in a recent article, RecessionsTypically Have Limited Effect on the Housing Market:
“As we look ahead to the next recession,it’s important to recognize how unusual the conditions werethat caused the last one, and what’s different about thehousing market today. Rather than abundant homes, we have ashortage of new home supply. Rather than risky borrowers taking onadjustable-rate mortgages, we have buyers with sterling creditscores taking out predictable 30-year fixed-rate mortgages. Thehousing market is simply much less risky than it was 15 yearsago.”
George Ratiu, SeniorEconomist at realtor.com, also weighed inon the subject:
“This is going to be a much shorter recession than thelast one, I don’t think the next recession will be a repeatof 2008…The housing market is in a betterposition.”
In the past 23 years, there have been two national recessions– the dot-com crash in 2001 and the Great Recession in 2008.It is true that home values fell 19.7% during the 2008 recession,which was caused by a mortgage meltdown that heavily impacted thehousing market. However, while stock prices fell almost 25% in2001, home values appreciated 6.6%. Thetriggers of the next recession will more closely mirror those from2001 – not those from 2008.
Bottom Line
No one can accurately predict when the next recession willoccur, but expecting one could possibly take place in the next18-24 months is understandable. It is, however, important torealize that the impact of a recession on the housing market willin no way resemble 2008.