Changing Times in Real Estate
Last updated 2/22/2023 at 4:17pm
Straight talk about recession
As we hear it all over the news, there is much talk about our current recession and so many different opinions about what the current situation means for the housing market. Two out of three economists do believe that 2023 will be the year of a recessionary period.
Let's take a look at the data and try to understand what this means to us today in terms of Real Estate valuation and marketability. With compiled data of over 20 economists, there was a range of a loss of 20% value in 2023 and 2024 to a gain of 6% value over the same period. Quite a bit of difference! As we dive into the national data, bear in mind that the data is nationally based and each area will have hyperlocal deviations to the norm.
A recession doesn't mean falling home prices
To show that home prices don't fall every time there's a recession, it helps to turn to historical data. As the graph below illustrates, looking at recessions going all the way back to 1980, home prices appreciated in four of the last six of them. So historically, when the economy slows down, it doesn't mean home values will always fall.
Most people remember the housing crisis in 2008 (the larger of the two red bars in the graph above) and think another recession would be a repeat of what happened to housing at that time. Today's housing market is not about to crash because the fundamentals of the market are different than they were in 2008.
According to experts, home prices will vary by market and may go up or down depending on the local area. The average of their 2023 forecast shows prices will net neutral nationwide, not fall drastically like they did in 2008.
A recession means falling mortgage rates
Research also helps paint the picture of how a recession could impact the cost of financing a home. Fortune explains mortgage rates typically fall during an economic slowdown: "Over the past 5 recessions, mortgage rates have fallen an average of 1.8% from peak to valley And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over."
In 2023, market experts say mortgage rates will likely stabilize below the peak we saw last year. That's because mortgage rates tend to respond to inflation. And early signs show inflation is starting to cool. If inflation continues to ease, rates may fall a bit more, but the days of 3% are likely behind us.
The big takeaway is you don't need to fear the word recession when it comes to housing. In fact, experts say a recession would be mild and housing would play a key role in a quick economic rebound. As the 2022 CEO Outlook from KPMG, says "Global CEOs see a 'mild and short' recession, yet optimistic about global economy over a 3-year horizon . . . More than 8 out of 10 anticipate a recession over the next 12 months, with more than half expecting it to be mild and short."
While history doesn't always repeat itself, we can learn from the past. According to historical data, in most recessions, home values have appreciated and mortgage rates have declined.
If you're thinking about buying or selling a home this year, connect with your trusted real estate expert so you have expert advice on what's happening in the housing market and what that means for your home buying or investing goals.
Ken Follis and Sharon Robinson Group are local Fallbrook Real Estate and Lifestyle experts that can guide you through your upcoming Real Estate needs no matter what they are. Come on by and let's chat!
Ken Follis, 760-803-6235 and Sharon Robinson, 949-295-1161 can also be reached at their downtown location at 100 N. Main in Fallbrook.