Marci Valicenti: Recession vs. housing crisis
It’s the “R” word — an unsavory word known to cause nervousness and PTSD flashbacks of the not-so Great Recession of 2008 — a recession that was created by a housing market meltdown, which many have painful memories of the aftereffects.
More than a decade later, we are in the longest running economic expansion in American history. But eventually, the growth will slow or stop. The term is an “economic slowdown” or recession, defined “as a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in Gross Domestic Product (GDP) in two successive quarters.” Note that housing crisis is not part of the definition.
How will the next recession affect us? Yahoo Finance experts state, “if an upcoming recession occurs, it will likely be due to trade policy, a geopolitical crisis and/or stock market correction but NOT a housing slowdown.” The stock market has shown recent volatility and certain economic indicators are signaling a possible recession.
If we look at the last five recessions in U.S. history; in three of them — 1980, 1981 and 2001 — housing prices actually increased. Two of those three, saw prices appreciate faster than the historical average — 1980 and 2001. For the two where prices decreased, one of them was less than 2% (1991), and the other was because the housing market caused the recession in the first place (2008).
The same experts who are predicting a recession are also predicting that housing will appreciate for the next five years, and sales are also projected to increase in 2020. Market conditions are not the same as they were in 2008. This is the biggest indicator that we won’t see a crash like the one a decade ago. It will more likely resemble the 2001 recession, when the stock market fell almost 25% while housing prices went up 6.6% — almost double historic norms.
With the forecast on home prices and looking at historical home prices during other recessions, sitting on the real estate fence may not be the best tactic for the next recession, especially with interest rates predicted to remain historically low through 2020. It is very important to have proper information when making investment decisions for an anticipated recession.
So if you think about the “R” word, remember to flashback to 2001 and not 2008.
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