The economy has been going at such a robust pace that economists worry some consumers may be waiting for the next recession to hit and drive prices down, just as the Great Recession did.
But a newly released report from First American Financial Services, a title insurance company, predicts that even when the next recession comes—and the predictions are that this will not happen anytime soon—the U.S. housing market is unlikely to take much of a hit.
“While the housing crisis is still fresh on the minds of many, and was the catalyst of the Great Recession, the U.S. housing market has weathered all other recessions since 1980,” writes the report’s author Odeta Kushi, deputy chief economist at First American.
The report culls data from the National Association of REALTORS® and Freddie Mac to show how the housing market has fared during most economic downturn cycles. In many cases, home price appreciation continued at an even pace, Kushi notes. Existing-home sales growth does often experience a slight decrease.
Certainly, the Great Recession was different. But the circumstances were different, the analysis notes. Researchers say that was largely driven by a rapid increase in home building and the expansion of mortgage credit. Buyers were able to obtain mortgages with no documentation of their income and virtually no down payment. “The housing crisis in the Great Recession was fueled heavily by the fact that job loss was paired with a significant share of homeowners who didn’t have much equity in their homes,” Kushi wrote.
However, home price increases lately have been driven by a lack of inventory and high buyer demand. Homebuilding has been sluggish and has been blamed for exacerbating housing shortages across the country. More homeowners are seeing substantial increases in home equity because of the housing shortages and high demand.
“On the whole, homeowners have very high levels of tappable home equity today, providing a cushion to withstand potential price declines,” Kushi writes. “In fact, the housing market may actually aid the economy in recovering from the next recession—a role it has traditionally played in previous economic recoveries.”