What will be the impact of a Recession on the Real Estate Market?
Do you want to know when the recession will happen and what the impact will be on buying or selling a home? Hi, I’m Paula Quinn with RE/MAX Central. I had a young couple stop me at an outdoor concert just a month ago and asked me if they should be selling their home now, even though they hadn’t quite planned on it to avoid the recession. My answer, in part, was this. First of all, I like to be sure that my answers are based not just on my experience, but also on the experience and opinions of a lot of other experts out there. One of those experts is Steve Harney, the oracle of real estate forecasting and the founder of Keeping Current Matters. He recently discussed this very topic during a presentation that I had attended. Keeping Current Matters reviewed three major studies that just came out in the last 60 days addressing these very questions and summarized what they were saying about an upcoming recession. Those three were The Wall Street Journal, which surveyed the top economists, Duke University, which surveyed the top chief financial officers, or CFOs, and then, also, the National Association of Business Economists, which surveyed its own membership. Now, when Keeping Current Matters averaged all three studies, almost 60% agreed that we will have a recession in the next 18 months. Now, what people think of when they think of recession, they think of 2007 and 2008, and keep in mind that the definition of a recession, and you can look this up in Webster Merriam’s online dictionary, is when the GDP slows down for two consecutive quarters. The reality is that most recessions don’t have a negative impact on the housing market. Yes, the last recession had a brutal 20% decrease in home prices, but keep in mind that what was different about that recession was that recession was caused by housing. Now, as you can see the four recessions before that, only once did we see prices decrease, and that was by less than 2%. So, if I were to explain a recession in the terms of a plane ride, the landing in 2007 and 2008 was a crash. It was a hard landing and people were clearly hurt. This landing, in contrast, will likely be soft, and people likely won’t even know that they are landing in a recession, other than, of course, the headlines screaming at ’em. The other thing to keep in mind is that we have been in a recovery mode for rates of appreciation on home prices. And it’s, in some cases, have been dramatic, double digits, which kind of scared some people, but the majority of those same experts that have talked about this recession said that the impact on home prices will slow down the appreciation to 3.5 to 4.5%, which is normal appreciation. So, the simple answer to that young couple was this. Sell when you are ready, and don’t worry about the headlines screaming recession at you. An economic recession is a normal function of the overall market, and certainly does not always mean a dip in home prices. That same survey that I talked about earlier with all those experts are in agreement that we will see this normalization of appreciation. So, always be safe , keep that seat-belt on, but don’t be surprised of that person napping next to you in the plane doesn’t even notice that you landed and wakes up. For more information on what you can be doing to prepare in this pre-recession market to sell your home, give me a call. Creating a tradition of trust, your realtor for life. Paula Quinn with RE/MAX Central.