Call (202) 596-8101 | Email us!
facebook linked in twitter youtube
Connect with us

What Does a Recession Mean for Homeowners

There has been a lot of talk in the news media lately about an impending recession, which has been feeding the pundits and the political machine with plenty of fodder to sew fear. According to National Bureau of Economic Research (NBER), there is a strong consensus among economists that the US is headed for a recession, but there is no clear agreement on when it will start. A few NBER members believe that the recession will begin in 2019, but most believe it will begin in 2020 or 2021.

Regardless of which side of the political divide on which you fall, it’s important to remember that the economy has been and always will be cyclical. After ever period of expansion, there is ALWAYS a correction, or a period of contraction. A recession is typically defined as a contraction of GDP that lasts at least two consecutive quarters. The US has been on an unprecedented 10 year expansion that cannot continue indefinitely. Eventually, the economy will take a breather.

But for homeowners, the word “recession” is a scary thing. The last one is still burned in the collective memory, because in addition to a naturally occurring recession, the US had to pay the piper for years of bad lending practices. Speculation by banks and lenders, and the proliferation of sub-prime mortgages with loose credit standards, low down payments, interest-only loans, and high loan-to-value mortgages, meant that unemployed borrowers were driven to foreclosure in record numbers with little to no equity. As home prices fell, more and more borrowers found themselves underwater. The convergence of these events was a scary time for homeowners.

Most economists believe that the next recession will be much shorter than the last. While it’s likely that unemployment will spike, there should be less of an impact to the housing market. After the meltdown in 2008, lenders became much more risk averse, and the qualifications for mortgages were tightened considerably. With fewer “bad mortgages”, there is less risk of a spike in foreclosures.

Now, this doesn’t mean that a recession will be painless. As companies feel the pinch in the contraction of GDP, there will be layoffs and job losses. This will certainly cause hardship for many homeowners. But a short recession means that it should not take as long for people to find a new job or recover from a job loss.

Another difference from a decade ago? American homeowners are sitting on a pile of equity, thanks to the long-term period of expansion we’ve experienced and a decade of increasing home values. If a homeowner is unable to make their mortgage payments, they can sell their homes for more than they owe, and head off foreclosure. This adds some resilience to the market that simply wasn’t there 10 years ago.

So what does this mean for homeowners? Don’t panic. Stay the course. A short recession will likely have little impact on your home values.

What does it mean for people who are thinking about buying a home? If you have the financial resources and the qualifications for a mortgage, don’t wait. Interest rates still very low, but are likely to rise. If you think you might be able to buy a home a fire sale prices during the recession, that likely won’t happen as we are unlikely to face a foreclosure crisis. If you wait, you may end up paying more in interest in the long run.

The ups and downs of the economy and the financial markets are normal. However, real estate is always a solid investment and owning your own home is the key to building your family’s wealth. When it is time to sell or buy a home, having a local team you can rely on will make the process a smooth one. Call the Realtors® who love where they live and understand the local real estate market. ADMC Realty Group happily serves the communities in and around the Washington DC, Maryland, and Northern Virginia areas. From start to finish, we’re here to help with all your Real estate needs. Give us a call at (202)596-8101 or email us at [email protected].

Leave a Reply

Affiliated with RE/MAX Allegiance | (202) 547-5600
 

Copyright © 2020 ADMCRealtyGroup    Log in     Design by Real Estate Tomato     Powered by Tomato Real Estate Blogs