With talk that a recession might be looming for Americans, some are wondering if this cloud might have a silver lining. Would a recession, for example, cause home prices to drop?
That’s the focus of a recent article by Curbed columnist Jeff Andrews, directed at the population most interested. It’s titled “Sorry, millennials: A recession won’t help you buy a house.”
Andrew notes that, although home prices dropped during the Great Recession, this isn’t likely to happen in any coming recession.
“The last recession was an anomaly in more ways than one,” Andrews writes, “and its effect on the housing market is the biggest outlier relative to other recessions. The 2008 recession didn’t cause the market to go into freefall. The housing market going into freefall caused the recession.”
Any coming recession, he posits, would be a “natural end” to the economic expansion we’ve experienced since 2008, and also affected by the U.S./ China trade war, rather than sparked by bad home-lending practices. “In other words, it would be a fairly standard recession that has nothing to do with mortgages or the housing market,” Andrews notes.
In addition, the housing market would be the exact opposite of 2008, with “tight mortgage credit instead of loose mortgage credit, housing supply shortage instead of a housing surplus.”
In fact, he adds, in some past recessions, home prices “actually increased…
because housing is an absolute need, and because buyers tend to come from better financial situations that aren’t as damaged by a recession.”
Still, a recession could give millennial buyers an edge in other ways, he adds. If they have saved enough for a down payment and/or have a stable job that isn’t affected by the recession, they would have an advantage in qualifying for mortgages, and greater unemployment could take competing buyers out of the market, resulting in “fewer bidding wars and less upward pressure on prices.”