What Happens To Home Prices During a Recession?

As a buyer’s agent I receive a lot of questions about how the next recession is going to affect housing prices. Most buyers, and sellers for that matter, have a nasty taste left in their mouths from the last downturn during the Great Recession, where prices fell on average about 20%. That leads people to think that waiting until the recession happens to buy a home means they’ll get a 20% discount on their home purchase. The data says otherwise.

When recessions hit, the Federal Reserve enacts monetary policy and begins lowering interest rates. Lower interest rates mean people can afford more home, for the same monthly carry cost as before the rate cut. Often buyers who were priced out of a market suddenly find themselves able to make a purchase because their monthly debt to income ratio has improved with lower rates. All of this puts pressure on the limited supply nationwide. With building costs so high, new product is not affordable enough and buyers look to existing homes.

Economic forecasters do not see the same situation happening in the next downturn, which will inevitable happen at some point. Real Estate Brokerage Firm Redfin states: “Whether it happens this year, next year, or in 10 years, another recession is inevitable,” Redfin writes in a report. “Regardless of when it comes, it’s unlikely to have a large negative impact on the real estate market.”

Here is the data on how housing prices were affected by the last 5 recessions: