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.

[Taylor L.]

I agree, we have a major recency bias in that we expect the next recession to hammer real estate as hard as it did last time. That's certainly a possibility, but historically recessions don't always go that way. 

ATTOM's data, however, seems to have the problem of being an average of the whole market. Real estate markets are hyper local. If the market as a whole goes up, there can still be areas in decline.