These are the most — and least — vulnerable housing markets if the U.S. heads into a recession (2024)

FAQs

What happens to the housing market if US goes into recession? ›

Will house prices go down in a recession? While the cost of financing a home typically increases when interest rates are on the rise, home prices themselves may actually decline. “Usually, during a recession or periods of higher interest rates, demand slows and values of homes come down,” says Miller.

According to ATTOM's newly released Q4 2022 Special Housing Risk Report, inland California, Illinois, New Jersey, and Delaware continued to have some of the highest concentrations of the most-at-risk markets in the country.

California, Illinois, New Jersey, and Delaware are home to the most at-risk housing markets, according to a Special Housing Risk report released by real estate data firm ATTOM. “Some parts of the country remain considerably more exposed to housing market declines than others,” says Rob Barber, CEO of ATTOM.

If a major downturn hits the U.S. economy, home prices in the New York City, Chicago and Philadelphia areas are the most vulnerable to declines, according to a new report from real-estate data company Attom Data Solutions.

Just because there's a recession doesn't necessarily mean rent prices go down. In fact, during the 2008 recession, it was the exact opposite. In the current rental market, we have seen the rate of increase in rental prices come down, but this only translates to lower rent prices if you're in select markets.

Job losses: During a recession, businesses struggle to make profits, leading to layoffs and job losses. Unemployment rates tend to rise significantly during a recession. Reduced consumer spending: Consumers tend to reduce spending during a recession as they become more cautious with their money.

High Vacancy Rates

High vacancies are especially risky if you count on rental income to pay for the property's mortgage, insurance, property taxes, maintenance, and the like.

Low-Income Households Are Particularly Affected by Unaffordable Housing. Households with the lowest incomes are by far the most likely to have housing costs that are unaffordable.

High costs of living, inadequate wages, and wealth and income inequality; A safety net that does not provide sufficient housing or supportive services.

Does housing crash in a recession? ›

Home prices generally fall during recessions, with home values slipping in four out of the five major recessions between 1980 and 2008.

What Caused the Financial Crisis of 2008? The growth of predatory mortgage lending, unregulated markets, a massive amount of consumer debt, the creation of "toxic" assets, the collapse of home prices, and more contributed to the financial crisis of 2008.

Collapsing home prices from subprime mortgage defaults and risky investments on mortgage-backed securities burst the housing bubble in 2008. Real estate prices rose steadily in the United States for decades, with slowdowns caused only by interest rate changes along the way.

There's no official correlation between stock market performance and housing prices. However, overall economic indicators that result from a stock market crash can often reverberate to the property market once stocks dip below 20%.

Key Takeaways

Real estate is a great asset to own when the economy is in freefall. A rental property typically acts as a natural hedge in a volatile market. People lose their jobs, earnings, and sometimes their homes when a great recession happens.

If you have the right resources going into it, real estate can be one of your best options for withstanding a recession. Real estate investments aren't a guaranteed success in a down market, but they're more reliable than many other asset classes.

Some of the pros of buying a house during the coming months, whether we get the recession label or not, include: Potential decrease in home prices. Lower likelihood of getting into a bidding war. Ability to refinance in the future with lower interest rates.

Businesses large and small face declines in sales and profits in a recession. Their efforts to cut costs may include layoffs and cuts in capital spending, marketing, and research. Recessions may curb credit access, slow collections, and spur business bankruptcies.

In all the countries affected by the Great Recession, recovery was slow and uneven, and the broader social consequences of the downturn—including, in the United States, lower fertility rates, historically high levels of student debt, and diminished job prospects among young adults—were expected to linger for many years ...

An economic downturn affects people's lives in many ways: through higher unemployment, reduced economic activity, reductions in income and wealth, and greater uncertainty about future jobs and income.

Is the risk high or low for real estate? ›

Compared to other investment types, like stocks, annuities, and cryptocurrencies, real estate is widely considered to be a low-risk investment.

The most common types of market risks include interest rate risk, equity risk, currency risk, and commodity risk. Interest rate risk covers the volatility that may accompany interest rate fluctuations due to fundamental factors, such as central bank announcements related to changes in monetary policy.

In four cities in particular, supply levels are above pre-pandemic levels, the bank said, which will result in greater price declines than the national average. They include: Phoenix, Arizona; San Francisco, California; Seattle, Washington; and Austin, Texas.

Homebuyer.com data analysis indicates that, for first-time home buyers, June 2023 is a good time to buy a house relative to later in the year. This article provides an unbiased look at current mortgage rates, housing market conditions, and market sentiment.

By the fourth quarter of 2024, the firm expects home prices to fall 19% in Austin, 16% in Phoenix, 15% in San Francisco, and 12% in Seattle.

There is a shortage of 7.3 million affordable and available rental homes for renters with extremely low incomes in the US, up 8 percent from 6.8 million in 2019. The lack of housing options for renters with extremely low incomes are driving the overall affordable housing shortage across the country.

Is the US still in a housing crisis? ›

Studies have shown that for the past 40 years, housing supply has not kept pace with demand, resulting in a housing shortage ranging between 2 million and 6 million homes. Yet across America, a combination of recalcitrant homeowners and outdated zoning laws routinely block attempts to build more housing.

The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the 2007–2008 global financial crisis. The crisis led to a severe economic recession, with millions of people losing their jobs and many businesses going bankrupt.

The Biggest Culprit: The Lenders

Most of the blame is on the mortgage originators or the lenders. That's because they were responsible for creating these problems. After all, the lenders were the ones who advanced loans to people with poor credit and a high risk of default.

Housing bubble. 2000s United States housing bubble.

But as interest rates started to rise in the mid-2000s, homeownership reached a saturation point, pushing real estate prices to drop and people to default on their loans, effectively rendering these credit products worthless and bursting the housing bubble as well as collapsing Wall Street.

Housing Market Forecast for California Metro Areas

Based on Zillow's data and CAR's data, the California housing market is expected to experience a slowdown in 2023 and 2024. According to Zillow, the average home value in California is $728,121, down 3.4% over the past year, and homes go pending in around 15 days.

Houses tend to get cheaper during a recession due to falling demand. People tend to be wary of making this big purchase during uncertain economic times, so prices fall to entice buyers.

While there's a lot of uncertainty in the real estate market and economy, many experts believe a housing market crash in 2023 is unlikely.

The crash was primarily caused by a combination of factors, including the subprime mortgage crisis, high levels of debt, and a lack of regulation in the financial sector. This article aims to provide an in-depth understanding of the housing market crash of 2008 and compare it to the current state of the housing market.

Prices fell by a record 9.5% in 2008, to $197,100, compared to $217,900 in 2007. In comparison, median home prices dipped a mere 1.6% between 2006 and 2007. Distressed properties, the foreclosures and short sales that have flooded the market, accounted for 45% of all deals.

When was the crash of the housing market? ›

This city dodged the 2008 housing market crash—now it's the epicenter of the pandemic correction.

From the peak of 4 million existing-home sales in 1978, there was -50% drop in home sales over the next four years, so that by 1982 only 2 million homes were sold (data here, Table 7). It took almost two decades, or until 1996, before home sales exceeded the 1978 level of 4 million units.

California Housing Market Overview

In April 2023, home prices in California were down 9.01% compared to last year, selling for a median price. On average, the number of homes sold was down 38.6% year over year and there were 21,415 homes sold in April this year, down 34,898 homes sold in April last year.

Key Takeaways. The 2007–2008 financial crisis developed gradually. Home prices began to fall in early 2006. In early 2007, subprime lenders began to file for bankruptcy.

As prices become unsustainable and interest rates rise, purchasers withdraw. Borrowers are discouraged from taking out loans when interest rates rise. On the other side, house construction will be affected as well; costs will rise, and the market supply of housing will shrink as a result.

During a housing market crash, the value of a home decreases. You will find sellers that are eager to reduce their asking prices. Sellers may be more motivated to bargain on price or make concessions to buyers.

When will the housing market crash? Actually, economists do not think it will. Housing economists point to five main reasons that the market will not crash anytime soon: low inventory, lack of new-construction housing, large amounts of new buyers, strict lending standards and a drop in foreclosures.

What Happens to Home Prices in a Recession? Home prices generally fall during recessions, with home values slipping in four out of the five major recessions between 1980 and 2008.

However, believe it or not, home prices usually tend to drop in a recession. But they don't always decline in every downturn. Home prices dropped four out of five times in the last five recessions. They usually fall at an average of 5% each year the economy remains in a recession.

Interest rates typically fall once the economy is in a recession, as the Fed attempts to spur growth. Refinancing debt and making more significant purchases are ways to take advantage of lower interest rates.

Is it good to buy a house before a recession? ›

Benefits to Buying a House Before a Recession

Increased Likelihood to Get a Mortgage – When the economy is doing well it is likely you are earning the most you can earn in your current employment. Higher earnings will lower your debt-to-income ratio.

Home values tend to fall during a recession. So, if you're searching for a home, you're likely to find: Homeowners who are willing to lower their asking prices. Homeowners doing short sales to get out from under their mortgages.

In addition, during recessions, people with access to cash are in a better position to take advantage of investment opportunities that can significantly improve their finances long-term.

Key takeaways

A recession is when the economy experiences negative GDP growth and a slowdown in other areas. Interest rates typically fall once the economy is in a recession, as the Fed attempts to spur growth. Refinancing debt and making more significant purchases are ways to take advantage of lower interest rates.

Freddie Mac chief economist Sam Khater. “[W]ith the rate of inflation decelerating rates should gently decline over the course of 2023.” Fannie Mae. 30-year fixed rate mortgage will average 6.4% for Q2 2023, according to the May Housing Forecast.

It took 3.5 years for the recovery to begin after the recession began. A lot of buyers who bought in 2008, 2009 or 2010 saw their home prices decrease before the recovery started in 2011. Condos deprecated by only 12%, while single-family homes depreciated by 19% after the recession.

“Typically, a housing market crash happens when a housing market bubble bursts,” Lippi explained. “A housing bubble occurs when the demand grows as more buyers continue to enter the market. This causes a shortage in supply, driving prices up. However, this phenomenon doesn't last.

The housing market crash of 2008 led to severe economic consequences. Millions of Americans lost their homes, and many more lost their jobs as businesses struggled to stay afloat.