Recession means home prices will fall? | Real Estate News 2022

May 23, 2022

Does recession mean home prices will fall? | Real Estate News 2022

Let’s talk about these four things when it comes to the recession:

I bring this up since the real estate news may be perplexing for many of you. I want to start off by talking about what’s been on the news recently.

Let’s look at how the stock market is doing because it looks like it just keeps on going down daily. And I want to put it out there that I am not an expert in all things stock market-related. I am a real estate agent, therefore, all I can offer you is my opinion regarding the housing market.

According to CNN, “Retail leaders Walmart (WMT) and Target (TGT), which have dragged down Wall Street this week due to disappointing outlooks, got hit again Thursday, and the news continues to be bad for other retail stocks. […] But Kohl's (KSS) shares were up nearly 4% Thursday in volatile trading even though the struggling chain reported a huge miss on earnings and cut its guidance.”

If you look at the stock market statistics over the last three months, you’ll see that as of April it started just dropping slowly.

Which leads me to asking, “What is a recession?”

Definition of Recession

According to Investopedia, my trusty best friend, “A recession is a macroeconomic term that refers to a significant decline in general economic activity in a designated region. It had been typically recognized as two consecutive quarters of economic decline, as reflected by GDP in conjunction with monthly indicators such as a rise in unemployment. However, the National Bureau of Economic Research (NBER), which officially declares recessions, says the two consecutive quarters of decline in real GDP are not how it is defined anymore.”

Again, for there to be a recession, the main indicator is two quarters back-to-back negative GDP plus other factors such as high unemployment.

The NBER is responsible for watching the numbers and declaring if we have a recession or not. The problem is, when NBER finally officially declares a recession, it is usually already a month after. This means, we could be in one right now, and we still don’t know.

This kind of looks like one. However, our unemployment rate is on the lower side, and we saw in Investopedia’s definition of a recession that it is one of the indicators necessary to declare a recession.

The numbers won’t be out until the end of June or the beginning of July.

Recessions in the past

The next I want to show you is put together by our friends at Keeping Current Matters.

The source of the data is CoreLogic and The Balance, and the graph is titled “Recession Doesn’t Equal a Housing Crisis.” It shows home prices change during the last six recessions in the US.

If you want to dive deeper and look at the list of all recessions that happened in the US, you can check it out here on Wikipedia.

If you take a look at the graph from Keeping Current Matters, during the recessions of 1980, 1981, 2001, and 2020, home prices went up. In the recession of 1991, it dropped by about 1.9%.

Most of these recessions lasted about a year or slightly less.

Now, note the recession of 2008 which had almost a 20% drop in home prices. It is also the year of the last housing crash. Although it wasn’t only the housing market affected, all the fundamentals of real estate and the stock market just screwed up.

If you look at where we’re at now, it’s nothing like that, at least on the housing side. I can’t speak for the stock market side because, again, I am a real estate agent.  

But that is what happened to the real estate market during the 2008 recession. The thing is, nothing like that even looks like it’s going to happen right now.

During the pandemic in 2020, we saw housing prices go up, and then they skyrocketed.

Mortgage applications and pending home sales

According to Mortgage News Daily, we are now at a 5.25% mortgage rate. If you look at the graph in the article titled “Purchase vs. Refinance Index,” you’ll see one of the indicators that will tell you where the housing market is heading.

In the graph, you’ll see home purchases are up and when the interest rates spiked, the purchase numbers started going down.

Now, here’s the thing. As interest rates typically go up, one thing it’s tied to is how much people can afford. The other one is the labor market—if people have jobs and good wages, they can buy homes.

This is one of the two things you are looking for. The other thing is pending home sales, which is also a leading indicator.

According to NAR, “Pending sales fell for the fifth consecutive month, down 1.2% in March from February.”

NAR also released an infographic where you can see the areas that had the biggest drop in home sales.

I’m located in the west, and you’ll hear people saying the west is better than the east, but I have no opinion on that.

In the infographic, the Midwest showed a 6.1% drop, the Northeast (around where Boston is) rose 4%, a 0.9% drop in the south, and a 0.2% drop in the west.

Right now, all of the data showed you might make you think we are heading to a housing crash, or something terrible may happen. But the biggest indicators of everything are two things: affordability and inventory.

We’ve already taken a look at affordability. Let’s take a look at where we are in inventory.


If we look at the housing inventory data by Fred, you’ll see how behind we are on housing supply.

As of the end of April 2022, (and they updated the data on May 10th) we are at 409,473 homes for sale. That is so far down from anything we’ve seen, and that means we only have a two-month supply of homes. The average is six months’ worth of supply.

We're starting to see it slowly (and I'm not sure what will happen in the next six to eight months), and the real estate market will begin to settle into a new normal.

Although what that “new normal” looks like, I don’t know. If we look at it regionally, for example, Miami is an extremely hot market. People are still moving in and driving prices up. Phoenix as well.

But then, you have to take a look because something’s got to give at some point [and it looks like inventory might give soon if builders can’t catch up with the demand] so that prices may start easing out.

Closing Thoughts

I want you to pay attention to hard data and the leading indicators because that is important.

This is why I make sure to put links to my resources for research so that you can check it out for yourself and draw your conclusions based on hard facts, not baseless opinions driven by emotions with no data to back them up.