Many Americans have felt the financial impact of the current economy. High gas prices, groceries, and even rent has become astronomical. Current or prospective homeowners may wonder how the housing market will be impacted in terms of housing prices and interest rates. Many wonder, what recessions can do to the housing market? Below you will find helpful information on the impact and how you can be prepared for what’s to come.
Growth in the Housing Market
Over the last ten years the housing market has had major growth. In fact, the medium home price increased 117% as of March 2022. This has resulted in increased mortgage rates. However, it has not slowed down the market quite yet. A recession may have an impact on this, but it’s important to know exactly how before you make any major financial decisions.
What Can Recessions Do to the Housing Market?
Just like everything else, a recession impacts the entire economy, including the housing market. While the housing market can fall during a recession, it’s not always the case. In fact, during the last five recessions (excluding the recession of 1990 and the Great Recession), home prices have remained steady or risen.
So, what do we know about the housing market right now? Current trends are showing signs that the housing market is slowing down.
- There are more homes on the market (and this will likely continue)
- The number of closed sales has decreased
- Home price reductions have increased (unpredictable whether this will continue)
Housing Market Projections and the Federal Reserve
Understanding the market volatility is necessary to ensure your financial assets are protected. While many have already felt the financial impact of the current economy, a recession can make things more complicated. This is especially true when it comes to the housing market. A recession will likely decrease the demand for homes due to the economic challenges the average American faces when it comes to finances.
While the Federal Reserve usually lowers interest rates during a recession, this is not the case now. Lowering interest rates can help reduce the cost of borrowing, making home buying more affordable. This is helpful as it can increase economic activity which can improve the housing market and overall economy. However, this is not what is happening now as the Federal Reserve is currently raising rates. Their rationale for this increase is to combat inflation rates. Inflation and increased interest rates by the Federal reserve are undoubtedly stifling the housing market for average Americans.
Unemployment, Inflation, and the Housing Market
Recessions often come with high unemployment rates. Because so many Americans work paycheck to paycheck or have little in savings, unemployment could impact their ability to pay their mortgage.
Unemployment coupled with rising inflation can result in people moving to relocate for a new job, or losing their home entirely.
What is the impact of high unemployment rates and inflation?
More homes on the market during a period with low demand for housing could result in home prices coming down. However, it is unlikely that prices will dramatically drop as they did during the Great Recession (from 2007 to 2009).
Relief for Current Homeowners
For current homeowners impacted by the current economy, you are not alone and you do have options. Foreclosure options for homeowners can help you preserve your financial health. A short sale is an effective alternative to foreclosure that ensures you don’t have to go through the long and daunting process of foreclosure. If you are financially struggling and can no longer afford your mortgage, contact the top Los Angeles CA short sale realtors.