Will home prices plummet in a recession?necessarily

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Homeowners don’t necessarily have to panic.

Key Point

• During a recession, home prices can plummet.
• Real estate prices are so high right now that a recession could lead to even more gradual declines.

There’s a reason so many prospective buyers have struggled to buy a home over the past year or two. Since late 2020, housing inventories have been sluggish, leading to a disconnect between buyer demand and real estate supply. And whenever demand significantly exceeds supply, prices tend to skyrocket.

In fact, it’s safe to say that 2022 has been a very difficult year for prospective homebuyers, not only because of soaring house prices, but also because mortgage rates have risen. At this point, even a strong borrower is considering paying twice as much interest on his mortgage as he did at this time last year.

On the other hand, there is a lot of talk that the US economy will enter a recession sometime in 2023. A big reason is that economists expect consumer spending to drop significantly as the Federal Reserve (Fed) continues to aggressively raise interest rates and borrowing becomes prohibitively expensive.

A recession in 2023 could lead to higher unemployment and even greater pain for stock market investors, many of whom are already frustrated by their portfolio performance this year. But will a recession hit the housing market?

Why home prices don’t always plummet

It’s safe to assume that if a recession hits next year, it could have an impact on home prices. We talked about the relationship between demand and supply in the housing market. If there is too little of the former and too much of the latter, the price tends to rise.

A weaker economy could push more potential buyers out of the market. As a result, the gap between housing supply and buyer demand could narrow, leading to lower home prices.But that’s because homeowners dramatic house value goes down.

Currently the property value is For real Due to the rise, homeowners still have an exceptional level of equity. Even if prices fall in 2023, the scenario of homeowners suddenly falling behind on their mortgages won’t necessarily happen (this is because the value of a particular home won’t be enough to cover the remaining loan balance). not as high).

Think of it this way. Suppose a house has a “normal” value of $350,000. The house may now be worth $420,000. There is none.

Homeowners Don’t Need to Panic

Property owners keeping their mortgages on track should not lose sleep over the impact of a recession on home prices. But if you’re struggling with your mortgage payments, you might want to consider letting go now before your financial situation takes a turn for the worse.

Likewise, any company looking to sell will sooner or later have to make a move. Between rising mortgage rates and a possible economic slowdown, waiting for a home to go public means there’s less money for it. If you’re in a position to sell your home before the end of the year, we encourage you to consider that route so you can get the best dollar.