Home Value Performance During and After Recessions

The recent plunge in stock markets, trade tensions, and declining consumer confidence have sparked growing speculation about a potential recession on the horizon.

But what exactly is a recession, and how might it impact the housing market? In this article, we'll define a recession and examine the historical effects on the housing sector during such economic downturns.

According to the National Bureau of Economic Research (NBER), a recession is "a significant decline in economic activity that is spread across the economy and lasts more than a few months." The NBER looks at three key criteria to make this determination: depth, diffusion, and duration of the economic decline. Extreme conditions in one area can outweigh weaker signals in another.

The NBER also identifies specific "peak" and "trough" months that mark the beginning and end of a recession – the period when economic activity is contracting. The subsequent period is considered an economic expansion, as activity begins to rise again.

In identifying economic peaks and troughs, the NBER closely monitors several key indicators, including real personal income less transfers, nonfarm payroll employment, household survey employment data, real personal consumption expenditures, real manufacturing and trade sales, and industrial production.

So, how has the housing market fared during past recessions?

Contrary to common fears, home values have actually increased during the majority of recent recessions, according to the Case-Shiller Home Price Index. In six out of the last seven recessions, real estate values rose both during and after the downturn.

The exception was the 2009 recession, which was triggered by the housing bubble and subprime mortgage crisis, rather than the recession itself. Today's stricter lending practices mean the housing market is on more stable footing.

And with interest rates typically dropping during recessions, this can actually provide a boost to home values.

So, while economic uncertainty may lie ahead, history suggests the housing sector may prove resilient in the face of a potential recession.

Do you want to benefit from analysis like this daily?

Investing in an MBS Highway membership– where you'll have access to tools like our Bid Over Asking Price, Buy vs. Rent Comparison, Loan Comparison tool, daily coaching videos, lock alerts and more – means you'll have everything you need to turn prospective homebuyers into clients and become the type of advisor they need to guide them in today's market and for years to come.

Take a free 14-day trial of MBS Highway and see for yourself how we can help you grow your business and benefit from the opportunities ahead.

By The MBS Highway Team