I know numerous people who are anxiously waiting for the next recession b/c they expect housing prices to tank.
They can’t wait to swoop in and find bargains like the many that were available after the 2008 meltdown.
BUT, according to Appraisal-Blogger-Extraordinaire, Ryan Lundquist, housing prices don’t always “correct” or decrease during recessions.
Prices often hold steady or go up during recessions.
One of the reasons is that the Fed reacts to recessions by pushing interest rates down. This in turn makes housing more affordable and thus pushes prices up.
You can read Ryan’s entire blog here, but here are a few key points.
We saw a huge reduction in prices after the 2008 recession but that should NOT be “the new template.” Ryan also pointed out that different local markets have much different reactions.
His local market of Sacramento, CA, for example, had a much more severe reaction than the overall national market did, as prices corrected massively in the early 1990s and in 2008.
California overall also had a much more severe reaction than did the national market.
Texas, however, has not been nearly as cyclical.
Below, I copied a graph from Ryan’s blog showing average U.S. housing prices since 1975.
The graph indicates that the only significant drop in prices occurred after 2008. During the previous four recessions, however, prices did NOT drop.
I also copied Ryan’s Sacramento graph, which shows how much more volatile that particular market is – to an amazing degree in fact.
The California markets seem to attract a lot more speculators for a variety of reasons, and I suspect that is a major factor behind California’s volatility.
Speculators not only leave the market as soon as it softens, but they are also much more likely to walk away from a property when the equity dries up.
B/c there has been so much less speculation during the last housing run-up, I suspect we will not see a major correction during the next recession if we see one at all.
Texas real estate did experience a fairly significant correction in the 1980s when the oil sector collapsed, but the Texas economy is now far more diversified so oil alone won’t tank the economy anymore.
We can look no further than today’s Texas economy for proof, as it continues to thrive even with very low oil prices.
Ryan’s final point was that nobody knows for sure what will happen, a point I often make too. But one thing we do know is that a repeat of 2008 is unlikely (so, fence sitters might want to stop fence-sitting 😊).
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