Do Home Values Drop In Recessions?
The last major recession that we went through in 2008-2010 was terrible. People were losing their jobs and their homes… multiple homes. As the most recent recession it is natural for the talks of a market correction to include the conversation that people will again lose their homes should there be another recession.
There are two ways to think about this as a potential home buyer. First, you could see the opportunity. Because there were record-high foreclosures, there were a lot of good deals to be had. Maybe if you wait until the recession is in full swing you can grab a great deal on a huge house for half the normal cost? Everyone has heard that you make money in real estate when you buy. Secondly, some buyers see the risky side of a recession and don’t want to be the homeowner who loses their home.
What history tells us is that home values actually stay strong through recessions. That’s right! The only recession in modern history where home values went down was the last recession in 2008. We have had one more recession since then, in 2020 caused by the pandemic, and home values actually shot through the roof. The reason the 2008 recession caused home values to go down was because it was real estate loans that caused the problem in the first place. Home buyers were being given loans without any verification that they could actually pay the loan should they lose their job. They were being given multiple loans and there was less competition in the market in terms of inventory (measured through buyer demand).
Three things have happened since the recession of 2008: First, the federal government required lenders to be much more transparent and stringent on who and how they issue loans. Because it was much more difficult to receive a loan, only those home buyers who could qualify did. There is also a three-day waiting period now after a home buyer receives their closing documents. Secondly, interest rates stayed at record lows and even reached below 3%. This drove a huge amount of buyer demand. Now more people could afford to buy a home but were still needing to prove they were strong financial buyers. Thirdly, there was a change in the normal demographics of American society. The Baby Boomers who were expected to move down in house size decided in large numbers to “age in place”. With record low-interest rates, Baby Boomers decided to refinance and stay in their current home, then deal with moving. With more buyers in the market and fewer homes to buy, this created multiple offers on almost every house for sale, which in turn allowed the buyer who was the most financially strong to beat out all the other buyers.
That is why in the last recession home values increased rather than decreased. A low supply of housing and still a very large demand of buyers continues to increase the values of homes in Portland and surrounding areas, even if we go into another recession. Because the buyers since 2010 have been the most capable buyers to get their offers accepted by sellers, there will be no more huge numbers of foreclosures, and if you get your offer accepted you can feel confident that you won’t lose your house either. The lending bank has already looked at your finances and decided that you are worth the risk. You ARE worth it!
So don’t expect a recession to lower your home values. Do expect your home values to continue to go up, and take advantage of those rising home values by buying a home as soon as you can financially. Do you need a lender you can trust? Contact us at Hello@TimberandRose.com for a list of trusted lenders our past clients have loved working with.