Recession? Yes. Housing Crash? No. Relocation? Stable.

Posted on: June 2nd, 2020 by Deidra

In April 2020, more than 90 percent of Americans were under a shelter-in-place order and many experts warned that the American economy was heading toward a recession, if it was not in one already. What does the U.S. housing market, and unemployment mean to relocation programs? Read this post from April 2020 to learn more.

What is a Recession?

According to the National Bureau of Economic Research: “A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.” COVID-19 hit the pause button on the American economy in the middle of March. Goldman Sachs, JP Morgan, and Morgan Stanley are all calling for a deep dive in the economy in the second quarter of this year. Though we may not yet be in a recession by the technical definition of the word today, most believe history will show we were in one from April to June. You might ask, “how will unemployment figure in?” Goldman Sachs projects the unemployment rate to be 15% in the third quarter of 2020, flattening to single digits by the fourth quarter of this year, and then just over 6% percent by the fourth quarter of 2021. Not ideal for the housing industry, but manageable. However, with the help being given to those who have lost their jobs and the fact that we’re looking at a quick recovery for the economy after we address the health problem, the housing industry should be fine in the long term.

Does that mean we’re headed for another housing crash?

Many fear a recession will mean a repeat of the housing crash that occurred during the Great Recession of 2006-2008. The past, however, shows us that most recessions do not adversely impact home values. Doug Brien, CEO of Mynd Property Management, explains: “With the exception of two recessions, the Great Recession from 2007-2009, & the Gulf War recession from 1990-1991, no other recessions have impacted the U.S. housing market, according to Freddie Mac Home Price Index data collected from 1975 to 2018.”

What are the experts saying this time?

This is what three economic leaders are saying about the housing connection to this recession:

Robert Dietz, Chief Economist with NAHB “The housing sector enters this recession underbuilt rather than overbuilt…That means as the economy rebounds – which it will at some stage – housing is set to help lead the way out.”

Ali Wolf, Chief Economist with Meyers Research “Last time housing led the recession…This time it’s poised to bring us out. This is the Great Recession for leisure, hospitality, trade and transportation in that this recession will feel as bad as the Great Recession did to housing.”

John Burns, founder of John Burns Consulting, also revealed that his firm’s research concluded that recessions caused by a pandemic usually do not significantly impact home values: “Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”

Bottom Line Impact on Relocation

If we’re not in a recession yet, we’re about to be in one. This time, however, housing will be the sector that leads the economic recovery. This too, will help keep relocation programs healthy and moving forward much unlike the Great Recession of 2008.

For the relocation industry, this is promising news! Let’s look at four important “why” factors:

Appreciation: Leading up to the 2008 crash, we had much higher appreciation in this country than we see today. In fact, the highest level of appreciation most recently is below the lowest level we saw leading up to the crash. Prices have been rising lately, but not at the rate they were climbing back when we had runaway appreciation.

Mortgage Credit: We’re nowhere near the levels seen before the 2008 housing crash when it was very easy to get approved for a mortgage. After the crash, however, lending standards tightened and have remained that way leading up to today. Mortgage rates are still low, and homeowners are rushing to refinance before the recession hits and the possibility of being unemployed becomes a reality.

Equity: Today, 53.8% of homes across the country have at least 50% equity. In 2008, when 100% financing was the “rage” homeowners walked away when they owed more than what their homes were worth. With the equity homeowners have now, they’re much less likely to walk away from their homes.

Undersupply of Homes: One of the causes of the housing crash in 2008 was an oversupply of homes for sale. Today, we see a much different picture. We don’t have enough homes on the market for the number of people who want to buy them. Traditionally, a healthy and balanced market is 6 months of inventory… across the country, we have less than 6 months of inventory, an undersupply of homes available for interested buyers.

 

Have questions or want to learn more about Lawrence Relocation, please contact Ginny Taylor, CRP/SGMS, by email or by phone at 540.966.4550