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Navigate the Recession Housing Market Amid Economic Worry

WRITTEN BY: Mark Romero

UPDATED: AUGUST 23, 2023 | 1 MIN READ

Recession Housing Markets

The echoes of 2022 reverberate with tales of a U.S. housing market slowdown. Predictions of a housing crash dominated conversations, but the market had a different narrative to share. As we delve deeper, one question remains: In the face of recessionary winds, is the recession housing market boom resilient enough to persist?

Table of contents:

Key housing market statistics

Recent data throws more light on the evolving recession housing market trends:

  • Mortgage interest rates hover around 7.12%, a record high since 2002.
  • Home sales declined 3.3% from May to June 2023, with a year-on-year dip of 18.9% since last June.
  • Housing inventory is still low, making the market’s balance more tilted. If you’re trying to buy a house, this makes it harder to find one without entering into a bidding war. However, if you’re trying to sell your home, there’s a good chance it will sell fast for a good price.

According to the May 2023 Case-Shiller home price index, housing prices have increased for four consecutive months. Reinforcing this trend, the National Association of Realtors (NAR) reported that more than half of U.S. metro areas experienced home price gains in Q2 2023.

This means housing prices are still steadily increasing, especially in larger cities. However, they aren’t increasing as fast as people’s income, so it could become a bigger problem if home prices continue to increase.

Current housing prices in context

June 2023 came with an interesting revelation. The median home price, which stood at $410,200, became the second-highest ever recorded by NAR, overshadowed only by last June’s $413,800. All of this happened despite the weight of mortgage rates now surpassing 7%.

Factors influencing housing prices

The current housing trend isn’t purely a demand factor but a significant lack of supply. In fact, the supply of homes on the market is so low that a whopping 70% of home sales had bidding wars. Experts like Skylar Olsen from Zillow believe this supply-demand imbalance will keep prices rising through 2024.

Federal Reserve’s stand on the recession housing market

The housing market’s sensitivity to interest rates hasn’t escaped the watchful eyes of the Federal Reserve. Chairman Jerome Powell emphasized housing as an interest-sensitive sector, signaling the Fed’s intention to monitor this space closely.

Comparisons with previous housing crashes

Memories of the 2005-2007 housing market debacle still linger, causing many to draw parallels. However, with today’s soaring mortgage rates combined with concerns over a looming recession, the climate is quite different. 

Yet, no one expects a repeat of the declines witnessed during the Great Recession, given the resilience showcased by the market and the homeowners.

Price evolution of the recession housing market

Though the housing market has displayed robustness, it’s essential to note that home prices have outpaced incomes. The strain on affordability gets accentuated further as mortgage rates have more than doubled since August 2021.

Regional variations and impact

Regions with traditionally high prices, like California, bear the brunt. Cities such as San Francisco and Los Angeles have reported price drops in 2023, albeit modest ones, while other markets still witness fierce competition, especially during the spring buying season.

5 reasons you don’t need to worry about a full-blown housing market crash

Fortunately, there are a few factors safeguarding against a full-blown crash, including:

  • Persistent low inventories
  • Cautious approach to building, post-last crash
  • New demographic demand, especially from Millennials and Hispanics
  • Unwavering lending standards
  • Controlled foreclosure activities, unlike previous crises

FAQs

Is the housing market going into recession?

No, the housing market isn’t going into a recession. Instead, it’s shown resilience following a recession-like phase during the pandemic. 

While there was a slowdown, most industry professionals believe the market is experiencing a temporary deceleration rather than a prolonged downturn. 

The market has been buoyed by improved supply chains, strong buyer demand despite rising mortgage rates, and a slow stabilization of housing prices post their 2022 drop. Additionally, the Federal Reserve’s view aligns with localized data suggesting stabilization in the housing market. 

However, challenges remain, including a significant housing shortage, inconsistent price recovery across regions, and the potential influence of future interest rate decisions by the Federal Reserve.

Is 2024 a good time to buy a house?

In 2024, the housing market is expected to experience greater stability with mostly stable home prices due to declining mortgage rates. This makes it a potentially favorable time for potential buyers waiting for an opportune moment. 

However, a persistent national housing shortage could give sellers an advantage in many regions. 

Furthermore, buyers should be prepared to consider additional factors like climate resilience and the comprehensive cost of homeownership, which includes expenses beyond the purchase price.

How long do housing recessions last?

The duration of housing recessions varies, depending on several factors, including the underlying causes of the downturn, the broader economic environment, policy responses, and the health of financial institutions. 

Historically, housing recessions in the U.S. have lasted anywhere from a few months to several years. For example:

  • The Great Depression in the 1930s saw a housing slump that lasted for several years.
  • The early 1990s recession saw U.S. housing prices drop and stagnate for a few years before rebounding.
  • The most recent and notable housing recession began in late 2006 and lasted until early 2012, making it about six years in duration, though the exact timing varied by region.

Keep in mind every housing recession is unique, and past durations don’t necessarily predict future recessions’ lengths. Also, regional factors can cause housing recessions to last longer in some areas compared to others.

Buy cautiously and protect your investment

Overall, the U.S. housing market’s resilience has been remarkable. Although prices continue to challenge affordability limits, the collective consensus among experts remains optimistic. 

While the current boom might adjust, a recession housing market bust seems highly unlikely, given the unique set of circumstances driving this market.

When you can purchase your dream home, be sure to use our online quote tool to compare home insurance rates.

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by Mark Romero, Mark Romero is the home insurance expert for AgileRates. Since 2016, he's worked diligently to educate others about the importance of homeowners insurance by keeping homeowners informed on all this home insurance.