Inflation is higher, the economy is contracting and the stock market remains volatile as forecasts are mixed about whether the economy will continue its downward trend or change course. Whether the U.S. is in a recession or not, the pocketbook of the average American probably feels a lot lighter.
But for anyone concerned about the housing market, there may be a silver lining. A broader economic slowdown does not necessarily mean the housing market will suffer, experts say. What’s more, conversations with realtors around the country suggest that most Americans are ignoring headlines or chatter about a slowing economy, and continuing their efforts to buy or sell.
“We probably hear that more out of media outlets and other realtors than the consumers,” says Steve Reese, a long-time Realtor in Shawnee, Oklahoma, of recession chatter. “I look at past recessions—and I’ve been through a few in my career—and it really tells me that a recession doesn’t mean a housing crisis.”
Reese’s observation is telling. The last real recession in the U.S., other than the short, sharp one caused by Covid-19 lockdowns, was caused by the housing market crash. Home prices peaked in 2006, the financial markets seized up in 2008 and the U.S. endured a long, painful downturn that technically ended in 2009, but seemed to drag on much longer than that. But things are very different now, and current conditions in the housing market suggest activity there can keep on chugging.
Extremely Low Housing Supply Has Kept the Market Up
One of the biggest reasons things are different now is the sheer lack of housing supply, which hit record-lows earlier this year. By some estimates, the housing crash of 2008 has left the country with a shortfall of nearly 4 million homes as homebuilding companies went out of business and distressed properties fell into disrepair.
And while many Americans have been able to become first-time homebuyers in recent years, there’s still not enough supply to keep up with all the demand that’s out there, largely from Millennial and Gen-Z generations, says Skylar Olsen, chief economist for Zillow.
The supply-demand imbalance means that nearly any time a home is listed for sale, there will be competition for it. That keeps housing activity churning regardless of higher interest rates and home prices that climbed to new levels every month this year.
Related: Compare Current Mortgage Rates
The median sales price of an existing home reached a record-high $416,000 in June, up 13.4% from a year ago, according to the National Association of Realtors (NAR). And that’s despite a 14.2% drop in home sales during the same period.
While home sales started to decline around May, it has not been enough to allow listings to stagnate or homes to fall into distress in most markets. And with continued demand for the houses that do get listed, prices keep rising, rather than slipping into a deflationary spiral.
Another key difference between the current market compared to 2008 is that mortgage underwriting practices are different. During the subprime bubble, people were encouraged to take out mortgages they couldn’t pay off and didn’t need documentation to prove they could afford it. Over the past decade, new regulations require mortgage applicants to demonstrate that they can pay back the loan.
Has the Housing Market Peaked?
While there’s still plenty of debate over whether the U.S. is actually in a recession, few people dispute that we’re definitely in an economic slowdown.
“It feels pretty clear that we passed over an inflection point,” Zillow’s Olsen says.
Hagan Stone, a Realtor at Parks in Nashville, Tennessee, is one of many professionals who felt his business hit a speed bump in the late spring to early summer.
“Up until the middle of June, people were paying well over list price, sometimes $200,000 to $300,000 over,” he says. “I haven’t had any clients pay over-list since then. People are thinking more, and that’s better for our economy.”
Stone says it’s better now because homebuyers are no longer making decisions “out of fear that something else may not come along.”
Some housing experts see the economic early warning signs as an indication that the housing market is headed to a healthier state. Others are more skeptical.
Some housing observers seem to have a mentality of “this time is different,” says Ken H. Johnson, a housing economist and associate dean of graduate programs in the finance department of Florida Atlantic University.
In the 2008 housing crisis, home prices in many areas didn’t regain value for almost a decade after peaking, Johnson says, while acknowledging the magnitude of the downturn after the subprime bubble burst. Still, Johnson notes some caution is warranted now, as his research suggests the market might have peaked in June.
“I would not want to be buying right now,” he says. “I would want to rent.”
Is Now a Good Time to Buy or Sell a Home?
It may sound corny, but the best advice on whether you should buy, sell, rent or stay put is very specific to your own situation.
Tim Hur, a Realtor at Point Honors and Associates in metro Atlanta, says he’s seeing “a little more normalcy in the market” and it’s “a little more balanced.” But Hur also acknowledges that some residents have been impacted by tech layoffs, and stock and cryptocurrency losses, causing the pool of potential buyers to change.
If that describes you—working in an industry that’s experiencing job reductions, or in danger of cutting jobs in the future—this might be a good time to rethink large purchases or loans. Also, if your down payment is contingent on somewhat speculative investments, you should take a hard look at your options.
Hur, like many real estate professionals, say real estate is meant to be a long-term investment. In other words, if you’re buying a home now and could potentially move in a year or two, you’re at greater risk of losing some money or home equity. Even if home prices continue to rise, there are costs associated with selling, buying and moving. You can use online calculators to visualize possible scenarios.
Another consideration: a downturn, if it intensifies, won’t impact all locations equally.
Johnson says he expects a sharply bifurcated national landscape between areas that already have “stagnant and even declining populations,” where home prices will likely decline, versus markets that are enjoying a population influx, where prices may just flatline for a while.
That’s not an absolute negative or positive. As Johnson points out, areas where home prices decline may become more popular, or at least more livable, because they offer more affordable housing options.
But online calculators and research may only get you so far. As Reese puts it, buying and selling a home is a very emotional process, and Americans have been through a lot in the past few years.
“My gut tells me that a little more time without anything horrible happening, and [then] people realize it will all be okay,” Reese says. “I think it will continue to be a positive outlook.”
