What would a recession do to the housing market?

What would a recession do to the housing market?

  • Kelli Ide
  • 09/15/22


What Does a Recession Mean for the Housing Market?

Alarmed by the current high rate of inflation, the Federal Reserve Board has issued a series of interest rate hikes with the intent to curb inflation rates. If the Federal Reserve Board goes too far, it is possible the moves could push the economy into a recession.

Some homebuyers and sellers may be worried that we are about to enter into an economic recession, and they wonder what effect a recession would have on the housing market.

A recession is a temporary economic decline when trade and industrial activity are reduced. An economic recession is identified when the GDP (Gross Domestic Product) falls for two consecutive quarters.

So the question is, are we in a recession now, and if so, how does that affect the housing market?

For now, experts disagree about whether we are in a recession or if we can expect to be in a recession any time soon. Rising interest rates as a result of the Federal Reserve Board’s efforts to curb inflation may cause a recession – although we have a strong labor market, corporate earnings growth and recessions only occurred 8% of the time over the last 30 years.

Historically, there is little correlation between a recession and falling home prices. The housing bubble of 2007- 2008 was an exception, but back then there was a tremendous supply coupled with weakened demand. When the market price correction came, it was larger than expected.

The Housing Market in a Recession

According to Forbes, a housing market recession is when home sales decline for six months in a row. This happened officially in July 2022. But according to Lawrence Yun, the Chief Economist for the National Association of Realtors, although existing home sales were down, home prices continue to rise.  

In the event that the economy falls into a recession, interest rates will decline. And if interest rates decline, mortgage rates will also decline. You will see more housing inventory, and an increased number of homes on the market will lead to slower appreciation of existing homes.

However, it is important to note that the anticipated slower real estate appreciation during a recession does not mean that housing prices go down. It just means that they go up more slowly.

Four Phases of the Real Estate Cycle

From an historical perspective there are four phases of the housing cycle – recovery, expansion, hyper supply and recession. Since the housing market in some areas is currently pulling back, we can expect to see it enter the recovery cycle next.

What that means for the homebuyer is that the recovery period is a good time to buy a home at below market values. But how can you tell when the housing cycle is entering a recovery?

While it’s impossible to know for certain, there are now signs that a housing market recovery is about to start. First of all, home prices are rising, and secondly, the economy in general is doing well.

What the Future May Hold

While nobody can foresee the housing market in the future, there are ways to predict what might happen going forward. In the recent past some buyers were motivated enough to make concessions like skipping the home inspection before signing on the dotted line to buy a house. Now, many buyers feel they are in the driver’s seat.

Homes are currently staying on the market longer, giving homebuyers more bargaining power. As a result, some buyers are requesting repairs or making conditional offers in addition to appraisal, mortgage and inspection contingencies.

Also, new home construction was down almost 10% in July 2022. If there is a stronger demand for real estate in the future and the supply is limited, prices are likely to rise. Demand for housing is all the more likely to happen if interest rates stabilize or fall.

The Bottom Line

So should you buy or sell now, or hold off? Here are some things to keep in mind.

  • Historically speaking, the price of homes has held up during recessionary periods.
  • Currently demand for housing is at an all-time high and there is not an oversupply of inventory.
  • Mortgage rates, while higher than last year, are historically lower than average. The national average for a 30-year fixed rate mortgage is now around 6%. Historically speaking, today’s fixed-rate mortgage is lower than the 7.77% average from 1971-2022.
  • A 30-year mortgage is a good hedge against inflation. While rents go up, your fixed-rate mortgage will stay the same.
  • The Housing Price Index increased by more than 860% since 1975. Buyers who bought at the start of the pandemic saw an increase of around 30% of their home’s value.
  • Home ownership comes with real estate tax benefits.
  • As you pay down your mortgage loan you also build equity in your home.

Buying or Selling a Home in the Finger Lakes


Count on experienced real estate agent Kelli Ide to give you guidance about selling or buying a home in the Finger Lakes region. Kelli can help you make smart decisions about buying or selling real estate. She can talk to you about your current situation and explain the best path forward, whether you want to sell or buy a permanent or vacation home.

Kelli Ide offers a unique, concierge-style approach to real estate, including staging, photo styling and market preparation services exclusively for clients to give them an edge over the competition. For further information about buying or selling a home in New York's Finger Lakes in today's economic climate, visit kelliide.com.          






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