Setting record straight on recessions

[Scott Passman]

There seems to be a lot of misconceptions about what a recession means and especially for real estate investors.  Yes, a recession is coming. But by nature of a cyclical economy it is either always coming or here already.  It may happen next year, in 5 years, 10 years etc.  But 2008 was a once in a lifetime anomaly and it seems like the results of that crash are being presumed for any future recession.  Keep investing, but do so wisely and always look to mitigate risk.  See below for a nice summary of the housing market over the last 5 recessions:

Housing in previous recessions

It’s somewhat counter-intuitive, but recessions don’t necessarily mean bad things for the housing market. In fact, they usually don’t.

ATTOM Data Solutions, a leading real estate data provider, looked at home prices during the five recessions since 1980 and found that only twice—in 1990 and 2008—did home prices come down during the recession, and in 1990 it was by less than a percent. During the other three, prices actually went up.

“Housing is such a basic need that it won’t necessarily do well, but [it will] at least truck along,” said ATTOM’s Daren Blomquist. “It may flatten out a bit, but people still need somewhere to live, so that basic need is going to cause how the housing market—and particularly home prices—to continue to go up.”

ATTOM data also show that rents are even less impacted by a recession. During the housing bust in 2008, the average fair market rent for a three-bedroom property, as calculated by the U.S. Department of Housing and Urban Development, rose at a steady clip even as home prices cratered. Rents likely rose as homeowners who had to go into foreclosure during the crisis added new demand for rental housing.

[Mitch Messer]

Hey @Scott Passman, thanks for sharing both the infographic and your perspective! Both were informative.

I completely agree that it is far too easy to fall into the "here we go again" trap, expecting the next recession to be an exact repeat of the previous one. But that almost never happens. "History doesn't repeat itself, but it often rhymes."

That said, when looking at data it is important to note that there is no national real estate market. So, the notion that the "average fair market rent... rose at a steady clip" in 2008 is a dangerously misleading factoid. This is the "my left hand is in the freezer and my right is on the stove, so on average I'm comfortable" fallacy.

You've got to look at what happened in the context of a specific market (or sub-market). For example, we were in the Atlanta market long before, during, and long after the Great Recession, and I can definitely state that rents there, on the whole, took a massive 15-25% hit in 2007-2009. Yes, people got foreclosed on, but the banks got swamped and were often reluctant/unable to physically take possession of all those properties, so many folks just stayed in place and paid nothing.