As if we weren’t already concerned about the economy with so many people out of work, 90% of U.S. citizens under “shelter in place” orders, and a pandemic ravaging our communities, what happened to oil prices this week was just the icing on the cake! Who would have thought that oil prices could go negative?
It’s news like this that just adds fuel to the fire, in terms of public fear and uncertainty about the overall economy and personal economies as well. Home prices are part of that equation for certain.
No one likes to say the R-word – RECESSION. Which is probably why economists have not been in agreement whether we are actually in one right now. The National Bureau of Economic Research defines recession as:
“A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
The last time our country experienced a recession, it was bad news for the housing industry. Memories are long, and we are quickly reminded of the flood of foreclosures and the loss of home values and equity. It took a long time to recover, even after the Great Recession officially ended in 2009.
Are We in a Recession Now?
COVID-19 hit the pause button on the American economy in the middle of March. Major financial firms Goldman Sachs, JP Morgan, and Morgan Stanley are all anticipating a deep dive in the economy in the second quarter of 2020. The problem with recessions is that they are almost never confirmed while we are actually in one. It’s almost always in hindsight. Many economists think that history will tell us that we were in a recession from April-June of this year.
Historical Impacts to Housing
The difference between then and now is that the housing was a leading cause of the The Great Recession. Irrational housing prices, exuberant overbuilding, ill-advised lending to unqualified buyers, and other systemic problems in the mortgage and housing industry caused an unprecedented fall off the wall for Humpty Dumpty.
This time around, housing is not the cause of the recession. The cause is a pandemic, that is causing a meltdown in the travel and leisure industry. Ali Wolf, Chief Economist with Meyers Research, explains:
“Last time housing led the recession…This time it’s poised to bring us out. This is the Great Recession for leisure, hospitality, trade and transportation in that this recession will feel as bad as the Great Recession did to housing.”
In fact, there are only two recessions in history that have adversely impacted housing, according to Doug Brien, CEO of Mynd Property Management:
“With the exception of two recessions, the Great Recession from 2007-2009, & the Gulf War recession from 1990-1991, no other recessions have impacted the U.S. housing market, according to Freddie Mac Home Price Index data collected from 1975 to 2018.”
CoreLogic has also studied the last five recessions, and corroborates this analysis.
What Does this Mean for Housing Now?
Truthfully, none of us have a crystal ball. However, the best indicators and the historical record point to continued strong housing values, that will form the foundation for recession recovery. According to Robert Dietz, Chief Economist with NAHB:
“The housing sector enters this recession underbuilt rather than overbuilt…That means as the economy rebounds – which it will at some stage – housing is set to help lead the way out.”
Especially in the Northern Virginia area, long-term pent-up demand has created a strong sellers’ market, where buyers outnumber sellers every quarter for the last several years. COVID-19 may have delayed the spring housing market, but the demand hasn’t disappeared. There are still more buyers than sellers, even now. Once military placements resume and those who delayed purchases until after the pandemic dissipates re-enter the market, demand has the potential to explode.
John Burns, founder of John Burns Consulting, also revealed that his firm’s research concluded that recessions caused by a pandemic usually do not significantly impact home values:
“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”
While the current market may seem a little challenging, viewing through a historical lens can help put the situation in perspective. Experts currently feel that the recession will be short-lived and followed by a quick return to some semblance of normalcy, which is good for home values. If you are thinking about buying or selling a home or investment property, please do not hesitate to contact us at firstname.lastname@example.org or phone us at 202.800.0800.