One of the most important questions that you need to know the answer to is how a recession impacts the housing market. Although we are still not in a recession, economic data continues to show mixed signs. Besides, the National Bureau of Economic Research hasn’t announced a recession as of yet. It is just that there is a lot of speculation that has been making the rounds.
Inflation is at an all-time high, which is not a good thing. However, the job market continues to perform well. On the other hand, economic growth has been sluggish. But consumer confidence remains steady. As for the stock market, it has crashed even though profit margins have remained solid. Hence, it can be confusing to understand where the housing market stands. Economists have shared some projections, which doesn’t mean that the coming months will go as anticipated.
What we know so far is that it is impossible to avoid a recession entirely. The Fed is trying to reduce inflation as it has remained high for a long time. To tackle the problem, interest rates will see a drastic increase. As interest rates will go up, the housing market may slow down. However, recessions haven’t caused a housing market crisis in the past and the same should be expected this time around.
How Would a Recession Affect the Housing Market?
Buying a house is the biggest purchase that most people make in their lives. It can be rather nerve-wracking for first-time buyers as their purchasing decision would have long-lasting financial implications. Even though it is impossible to know how a recession would exactly affect the housing market, it is clear that a global recession is highly probable. A strong dollar is to blame as it is driving investment in the United States and pushing up prices. However, overseas profits generated by most S&P 500 companies are falling in dollar terms. Moreover, companies have started to cut back on investment and are freezing new hires indefinitely.
According to Paul Krugman, a Noble Prize winner in economics, the Fed has managed to act strongly on inflation and the housing market is expected to see a correction. An increase in interest rates would result in less demand for new properties. This would lead to construction slowing down and reducing the number of properties that are available for sale. The cycle will continue until there is more demand and the construction of new properties starts to speed up again. Therefore, the housing market would be flooded with more options within the next 10 to 20 years.
If there is one thing that you need to keep in mind, it is the fact that there are many lessons that we can learn from the past. Looking back to every recession that hit the country since 2000, home buyers managed to make a profit even when they purchased a property right before a recession. Hence, there is no need for you to stress.