What Past Recessions Tell Us About the Housing Market
It doesn’t matter if you’re someone who closely follows the economy or not, chances are you’ve heard whispers of an upcoming recession. Economic conditions are determined by a broad range of factors, so rather than explaining them each in depth, let’s lean on the experts and what history tells us to see what could lie ahead. As Greg McBride, Chief Financial Analyst at Bankrate, says:
“Two-in-three economists are forecasting a recession in 2023 . . .”
As talk about a potential recession grows, you may be wondering what a recession could mean for the housing market. Here’s a look at the historical data to show what happened in real estate during previous recessions to help prove why you shouldn’t be afraid of what a recession could mean for the housing market today.
A Recession Doesn’t Mean Falling Home Prices
To show that home prices don’t fall every time there’s a recession, it helps to turn to historical data. As the graph below illustrates, looking at recessions going all the way back to 1980, home prices appreciated in four of the last six of them. So historically, when the economy slows down, it doesn’t mean home values will always fall.
Most people remember the housing crisis in 2008 (the larger of the two red bars in the graph above) and think another recession would be a repeat of what happened to housing then. But today’s housing market isn’t about to crash because the fundamentals of the market are different than they were in 2008. According to experts, home prices will vary by market and may go up or down depending on the local area. But the average of their 2023 forecasts shows prices will net neutral nationwide, not fall drastically like they did in 2008.
A Recession Means Falling Mortgage Rates
Research also helps paint the picture of how a recession could impact the cost of financing a home. As the graph below shows, historically, each time the economy slowed down, mortgage rates decreased.
Fortune explains mortgage rates typically fall during an economic slowdown:
“Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over.”
In 2023, market experts say mortgage rates will likely stabilize below the peak we saw last year. That’s because mortgage rates tend to respond to inflation. And early signs show inflation is starting to cool. If inflation continues to ease, rates may fall a bit more, but the days of 3% are likely behind us.
The big takeaway is you don’t need to fear the word recession when it comes to housing. In fact, experts say a recession would be mild and housing would play a key role in a quick economic rebound. As the 2022 CEO Outlook from KPMG, says:
“Global CEOs see a ‘mild and short’ recession, yet optimistic about global economy over 3-year horizon . . .
More than 8 out of 10 anticipate a recession over the next 12 months, with more than half expecting it to be mild and short.”
Bottom Line
While history doesn’t always repeat itself, we can learn from the past. According to historical data, in most recessions, home values have appreciated and mortgage rates have declined.
If you’re thinking about buying or selling a home this year, let’s connect so you have expert advice on what’s happening in the housing market and what that means for your homeownership goals.
What Experts Are Saying About the 2023 Housing Market
If you’re thinking about buying or selling a home soon, you probably want to know what you can expect from the housing market this year. In 2022, the market underwent a major shift as economic uncertainty and higher mortgage rates reduced buyer demand, slowed the pace of home sales, and moderated home prices. But what about 2023?
An article from HousingWire offers this perspective:
“The red-hot housing market of the past 2 ½ years was characterized by sub-three percent mortgage rates, fast-paced bidding wars and record-low inventory. But more recently, market conditions have done an about-face. . . . now is the opportunity for everyone to become re-educated about what a ‘typical’ housing market looks like.”
This year, experts agree we may see the return of greater stability and predictability in the housing market if inflation continues to ease and mortgage rates stabilize. Here’s what they have to say.
The 2023 forecast from the National Association of Realtors (NAR) says:
“While 2022 may be remembered as a year of housing volatility, 2023 likely will become a year of long-lost normalcy returning to the market, . . . mortgage rates are expected to stabilize while home sales and prices moderate after recent highs, . . .”
Danielle Hale, Chief Economist at realtor.com, adds:
“. . . buyers will not face the extreme competition that was commonplace over the past few years.”
Lawrence Yun, Chief Economist at NAR, explains home prices will vary by local area, but will net neutral nationwide as the market continues to adjust:
“After a big boom over the past two years, there will essentially be no change nationally . . . Half of the country may experience small price gains, while the other half may see slight price declines.”
Mark Fleming, Chief Economist at First American, says:
“The housing market, once adjusted to the new normal of higher mortgage rates, will benefit from continued strong demographic-driven demand relative to an overall, long-run shortage of supply.”
Bottom Line
If you’re looking to buy or sell a home this year, the best way to ensure you’re up to date on the latest market insights is to partner with a trusted real estate advisor. Let’s connect.
3 Best Practices for Selling Your House This Year
A new year brings with it the opportunity for new experiences. If that resonates with you because you’re considering making a move, you’re likely juggling a mix of excitement over your next home and a sense of attachment to your current one.
A great way to ease some of those emotions and ensure you’re feeling confident in your decision is to keep these three best practices in mind.
1. Price Your Home Right
The housing market shifted in 2022 as mortgage rates rose, buyer demand eased, and the number of homes for sale grew. As a seller, you’ll want to recognize things are different now and price your house appropriately based on where the market is today. Greg McBride, Chief Financial Analyst at Bankrate, explains:
“Price your home realistically. This isn’t the housing market of April or May, so buyer traffic will be substantially slower, but appropriately priced homes are still selling quickly.”
If you price your house too high, you run the risk of deterring buyers. And if you go too low, you’re leaving money on the table. An experienced real estate agent can help determine what your ideal asking price should be.
2. Keep Your Emotions in Check
Today, homeowners are living in their houses longer. According to the National Association of Realtors (NAR), since 1985, the average time a homeowner has owned their home has increased from 5 to 10 years (see graph below):
This is several years longer than what used to be the historical norm. The side effect, however, is when you stay in one place for so long, you may get even more emotionally attached to your space. If it’s the first home you bought or the house where your loved ones grew up, it very likely means something extra special to you. Every room has memories, and it’s hard to detach from the sentimental value.
For some homeowners, that makes it even harder to negotiate and separate the emotional value of the house from fair market price. That’s why you need a real estate professional to help you with the negotiations along the way.
3. Stage Your Home Properly
While you may love your decor and how you’ve customized your home over the years, not all buyers will feel the same way about your design. That’s why it’s so important to make sure you focus on your home’s first impression so it appeals to as many buyers as possible. As NAR says:
“Staging is the art of preparing a home to appeal to the greatest number of potential buyers in your market. The right arrangements can move you into a higher price-point and help buyers fall in love the moment they walk through the door.”
Buyers want to envision themselves in the space so it truly feels like it could be their own. They need to see themselves inside with their furniture and keepsakes – not your pictures and decorations. A real estate professional can help you with tips to get your house ready to sell.
Bottom Line
If you’re considering selling your house, let’s connect so you have the help you need to navigate through the process while prioritizing these best practices.
What Makes a House a Home?
There’s no denying the long-term financial benefits of owning a home, but today’s housing market may have you wondering if now’s still the time to buy. While the financial aspects of buying a home are important, the non-financial and emotional reasons are too.
Home means something different to all of us. Whether it’s sharing memories with loved ones at the kitchen table or settling in to read a book in a favorite chair, the emotional connections to our homes can be just as important as the financial ones. Here are some of the things that make a house a home.
1. You Can Be Proud of Your Accomplishment
Buying a home is a major life milestone. Whether you’re setting out to buy your first home or your fifth, congratulations will be in order when you’ve achieved your goal. The sense of accomplishment you’ll feel at the end of your journey will truly make your home feel like a special place.
2. You Have Your Own Designated Happy Place
Owning your own home offers not only safety and security, but also a comfortable place where you can relax and unwind after a long day. Sometimes that’s just what you need to feel recharged and content.
3. You Can Find the Space To Meet Your Needs
Whether you want more room for your changing lifestyle (like retirement, dedicated space for a hobby, or a personal gym) or you simply prefer to have a large backyard for entertaining, you can invest in a home that truly works for your evolving needs.
4. You Can Customize Your Surroundings
Looking to try one of those decorative wall treatments you saw online? Tired of paying an additional pet deposit for your apartment building? Or maybe you want to create an in-home yoga studio. You can do all these things in your own home.
Bottom Line
Whether you’re planning to purchase your first home or you’re ready to buy a different home to meet your needs, consider the emotional benefits that can turn a house into a happy home. When you’re ready to make a move, let’s connect.
Homeownership Is an Investment in Your Future
There are many people thinking about buying a home, but with everything affecting the economy, some are wondering if it’s a smart decision to buy now or if it makes more sense to wait it out. As Bob Broeksmit, President and CEO of the Mortgage Bankers Association (MBA), explains:
“The desire for homeownership is strong. Many prospective buyers are waiting for the volatility in mortgage rates to subside, as well as for a clearer picture of the economic outlook.”
If you’re in that position, remember that it’s important to consider not just what’s happening today but also what benefits you may gain in the long run.
There’s a lot of information out there about how homeownership helps build a homeowner’s net worth over time. But even today, many people think first about things like 401(k)s before they think of owning a home as a wealth-building tool. It’s especially important if you’re a young prospective homebuyer to understand how homeownership is another key way to invest in your future. An article from Bloomberg notes:
“Millennials have higher average 401(k) balances than Generation X did when they were the same age, but they’re not any better off financially. . . . A lot of that has to do with being less likely to own a home.”
To help you understand just how much owning a home can have a positive impact on your life over the years, take a look at what the data shows. The same Bloomberg article helps show the gap in wealth between renters and homeowners who are 65 years and older (see graph below). The difference is substantial, even when incomes are similar.
So, if you want to create wealth to help set you up for success later on, it may be time to prioritize homeownership. That’s because, whether you decide to rent or buy a home, you’ll have a monthly housing expense either way. The question is: are you going to invest in yourself and your future, or will you help someone else (your landlord) increase their wealth?
Bottom Line
Before putting your homeownership plans on hold, let’s connect to go over your options. That way, you’ll have expert advice on how to make the best decision right now and the best investment in your future.
3 Ways You Can Use Your Home Equity
If you’re a homeowner, odds are your equity has grown significantly over the last few years as home prices skyrocketed and you made your monthly mortgage payments. Home equity builds over time and can help you achieve certain goals. According to the latest Equity Insights Report from CoreLogic, the average borrower with a home loan has almost $300,000 in equity right now.
As you weigh your options, especially in the face of inflation and talk of a recession, it’s important to understand your assets and how you can leverage them. A real estate professional is the best resource to help you understand how much home equity you have and advise you on some of the ways you can use it. Here are a few examples.
1. Buy a Home That Fits Your Needs
If you no longer have the space you need, it might be time to move into a larger home. Or it’s possible you have too much space and need something smaller. No matter the situation, consider using your equity to power a move into a home that fits your changing lifestyle.
If you want to upgrade your house, you can put your equity toward a down payment on the home of your dreams. And if you’re planning to downsize, you may be surprised that your equity may cover some, if not all, of the cost of your next home. A real estate advisor can help you figure out how much equity you have and how you can use it toward the purchase of your next home.
2. Reinvest in Your Current House
According to a recent survey from Point, 39% of homeowners would invest in home improvement projects if they chose to access their equity. This is a great option if you want to change some things about your living space but you aren’t ready to make a move just yet.
Home improvement projects allow you to customize your home to suit your needs and sense of style. Just remember to think ahead with any updates you make, as some renovations add more value to your home and are more likely to appeal to future buyers than others. For example, a report from the National Association of Realtors (NAR) shows refinishing or replacing wood flooring has a high cost recovery. Lean on a local professional for the best advice on which projects to invest in to get the greatest return on your investment when you sell.
3. Pursue Your Personal Goals
In addition to making a move or updating your house, home equity can also help you achieve the life goals you’ve dreamed of. That could mean investing in a new business venture, retiring or downsizing, or funding an education. While you shouldn’t use your equity for unnecessary spending, leveraging it to start a business or putting it toward education costs can help you achieve other lifelong goals.
Bottom Line
Your equity can be a game changer. If you’re unsure how much equity you have in your home, let’s connect so you can start planning your next move.