The U.S. Is in a Recession—But This Housing Market Is Different
On Monday, the National Bureau of Economic Research (NBER) announced that the U.S. economy is officially in a recession. This news didn’t surprise many, especially given how the pandemic shut down much of the country earlier this year.
What Is a Recession?
According to NBER:
“A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.”
While expected, the announcement has still caused some anxiety—particularly for homeowners and potential buyers. Many remember the severe impact the 2008 recession had on the housing market.
But today’s real estate market is in a completely different position.
How This Recession Differs From 2008
As Mark Fleming, Chief Economist at First American, explained:
“Many still bear scars from the Great Recession and may expect the housing market to follow a similar trajectory in response to the coronavirus outbreak. But, there are distinct differences that indicate the housing market may follow a much different path. While housing led the recession in 2008-2009, this time it may be poised to bring us out of it.”
Four Key Differences in Today’s Market
1. Homeowners Have Significant Equity
Families today have large sums of equity in their homes, which provides financial stability even in uncertain times.
2. Low Housing Inventory
Unlike in 2008, we now face a shortage of housing inventory, not a surplus. This supports home values rather than dragging them down.
3. Responsible Lending Practices
Irresponsible lending was a major driver of the 2008 crash. Today’s lending standards are much stricter and more transparent.
4. Steady Home Price Appreciation
Home price appreciation today is strong, but not runaway. It’s being driven by real demand, not speculation.
A Recession Does Not Equal a Housing Crisis
It’s also important to note that in three of the four previous recessions prior to 2008, home values actually increased. In the one instance where prices fell, the decline was only 1.9%.
Bottom Line
Yes, the U.S. is officially in a recession. But unlike 2008, the housing market is on far stronger footing. With better lending standards, strong equity, limited inventory, and continued demand, real estate may play a key role in leading the economic recovery.
