What will a recession do to your Home Value?
The last 10 years have been a great period of growth for our
economy including our local economy which has boomed by more then 25%. Utah’s median sells price is up from $211K to
$275K over that period. The question
remains today whether there is a correction soon or whether housing prices can
continue to grow.
Looking back over the last 40 years there have been 5
significant national recessions. Recession
being a period of declining GDP for more than 9 months.
The media as well as many economists are concerned that a
recession is on the horizon bringing consumer confidence down and causing some
individuals to pull the breaks on major purchases thus increasing the
possibility of the next recession.
Housing prices are among the largest concern for most
individuals when it comes to recessionary periods.
It is easy for us to remember the 2008 recession as being
devastating to the housing market causing significant declines in value. Because of the recent memory of this
recession a significant portion of consumers are waiting to purchase their next
home.
The next recession will be different. Recessions happen for different reasons often
causing confusing about what will or will not happen during a recession. The Great Recession of 2008 and the great
depression of 1929 had a broad impact on the entire economy causing retail
sales, auto sales, housing prices, and commodities to drop or shrink
drastically. Other recessions like 1980,
1991, and 2001 recession were very different having a limited effect if any on
housing but effecting other items like Banking system, technology companies,
and retail sales dramatically.
The next recession when it arrives which is inevitable is
likely to have little to no impact on housing.
There are a few reasons why the Real Estate market is well positioned to
handle the next recession with grace.
· 1.Interest rates are already low and are still
dropping. In the beginning of the 2008
recession interest rates had crept up to near 6% leaving potential home buyers
to completely pause when the first signs of the recession hit. Rates then did not start their descent until
we were heavily entrenched in the recession.
While the jury is still out to whether we will tumble into a recession
interest rates have already started to fall dropping close to unseen lows.
· 2. Supply of housing is low. Because the real estate marketing is driven
by supply and demand the fact that the housing market is short on supply is what
is driving home values higher. This is
unlikely to changes as consumer confidence in the economy will keep people settled
in their current homes.
· 3. Rental market is booming. The pricing tenants
pay to rent a place to live helps drive the housing market. If you are renting today, you likely noticed
that you are paying a premium to rent a unit.
This will continue to drive renters to become home buyers. CNBC is reporting that rents are likely to
increase through 2020.
· 4. Utah’s and Washington Counties Economy
distinctly different that the National Economy.
Utah & Southern Utah are expected to % grow year over year and ranks
statistically as one of the fastest growing locations in the Country. This will play a huge role in sustain our
economy on a local level even when the National Economy struggles to maintain
growth. While parts of a recession will
evidently hurt our local economy we will likely feel those struggles less than
other metropolis areas.
· 5. Election year cycle. I must mention the impact
of politics on the economy. Our current Incumbent
president will push continually to keep the economy working in a positive
direction. You’ll have noticed the news coverage
with negative comments about the federal reserve being criticized and pushed to
reduce lending rates faster to head off any head wind in the future on the
economy. This rhetoric will likely
continue driving rates lower and incentivize buyers.
If you desire to purchase a home but are hesitant due
to the news of potential economic downturn recognize that with downturns always
come rebounds and that the best time to buy a home is when you are ready to
plunge into the role of home-ownership. Don't let the media or the opinions of other direct what is best for your life.
