Does our last recession tell the story of what will happen to property prices in the next recession? You will be surprised that the next recession may be different.
A recent report by a title insurance company, First American Financial Services, discusses the likelihood that the US housing market will remain stable in the next recession. Most experts predict that the next recession will not come soon, but this news is certainly welcome. First American Financial Services used its own data and additional information from Freddie Mac and the National Association of Realtors to illustrate how the property market has worked in previous recessions and to indicate that the property market has generally remained strong.
What will be different
In the last recession, you had increased access to mortgage loans, which opened the door to home ownership for more people with less equity in their homes. The construction also produced more houses, which reduced house values when the recession started. These factors, along with job loss, have contributed to the severity of the recent recession and its impact on property prices.
Our current economic expansion has led to growth in property prices and more homeowners with more equity in their homes. In contrast to the last recession, this increase in home ownership is not due to an increase in access to mortgage credit. Given the strong homeowner and the current shortage of housing supply, the housing market is expected to be more resilient and less homeowners at risk of submerging their loans.
“While the real estate crisis is still fresh in the minds of many and triggered the great recession, the US real estate market has weathered all other recessions since 1980. Indeed, the real estate market can actually help the economy recover from the next recession – a role it has traditionally played in previous economic recovery. “
– Odeta Kushi, author of the report and deputy chief economist at First American
As usual, there will be some regional differences and some regions may be less resilient than others. Regions with a higher concentration of homeowners who have been in default since the last recession would be more vulnerable to downturns triggered by job losses.
“Overall, homeowners now have a very high level of predictable home equity, which is a cushion to withstand potential price drops,” writes Kushi. “In fact, the real estate market can actually help the economy recover from the next recession – a role it has traditionally played in previous economic recoveries.”
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