A Recession is Coming. How Does That Impact Our The Housing Market?
Economists from the National Business of Economics predict that the next recession will be here as early as the last quarter of 2019. Many economists, including, the Wall Street Journal believe the recession will begin in 2020.
Only, this time, it won't be driven by our housing market like the Great Recession. "During the housing boom, investment in mortgage-backed securities led to high demand for sub-prime mortgage assets across the country, and many markets became overheated. When interest rates rose, monthly payments increased on adjustable rate mortgages, leaving many borrowers unable to pay their mortgages," according to Sam Khater, Deputy Chief Economist at Corelogic.
When we go into the next recession, experts believe it will be from other factors, like trading wars, or possibly from fast rising interest rates by the Federal Reserves.
Zillow performed a survey recently with both economists and real estate experts. "Obviously housing played a big role in the last recession, it's not necessarily obvious it will play a big role in the next recession," says Aaron Terrazas, senior economist with Zillow, who sponsored last month's economic survey. "The economists we surveyed were far more concerned with things like trade, geopolitical crises, and interest rate movements."
So What Does this Mean for Sellers?
Experts think that the market will continue to experience strong appreciation with predictions of a 5.5% rise in 2018. Nationally, "constrained home suppy, persistent demand, very low unemployment, and steady economic growth have given a jolt to the near-term outlook for US home prices," according to Pulsenomics founder Terry Loebs. "These conditions are overshadowing concerns that mortgatge rate increases expected this year might squash the appetite of prospective home buyers."
For our local market, we aren't seeing the double digit percent increases in home values like we did last year, but we are expected to still see a rise in value.
What Does this Mean for Buyers?
As we close in on the longest economic expansion this country has ever seen, meaningfully higher interest rates should eventually slow the frenetic pace of home value appreciation that we have seen over the past few years, a welcome respite for would-be buyers," said Zillow senior economist Aaron Terrazas. "Housing affordability is a critical issue in nearly every market across the country, and while much remains unknown about the precise path of the U.S. economy in the years ahead, another housing market crisis is unlikely to be a central protagonist in the next nationwide downturn."
For our local market, buyers with loans will have less buying power with increased interest rates, but the homes will not be increasing in price at the same rate as previous years, meaning they have better opportunities to get into a home.
A Little Peace of Mind
Historically, the Seattle area, comparatively, is not impacted the same way as the rest of the country. Additionally, we have a higher rebound effect after a recession. For the graph and data lovers out there, I've included some charts for your reference.
Kristin Bushnell is Designated Broker of Bushnell Real Estate Solutions and Co-owner of Bushnell Craft Brewing Company in Redmond, WA. Check out my profile here.
If you are ever interested in chatting about real estate, contact me at kristinbushnell@gmail.com or call me at 425-559-1355. I'll buy you a beer (or non-alcoholic beverage, if you prefer!), and we can chat about real estate until your heart's content.
