When the stock market is imploding, real estate becomes an attractive asset class up to a certain point. That point is up to around a 35% decline in the S&P 500. After a 35% decline in the S&P 500, expect real estate prices of all types to start declining as potential buyers fear an upcoming recession.
Home prices will likely continue to grow in most markets, but at a slower pace. If a recession is on the horizon for 2023, it could mean the housing market is bracing for a cool down after years of hot demand driving prices higher — but that doesn't mean homeownership will become more affordable for prospective buyers.
Waiting for the market to crash might not yield the results buyers hope for, experts say. “There's not really any room for there to be a bubble right now. It's not like people have borrowed too much and it's not like homes are overvalued,” says Daryl Fairweather, chief economist at Redfin.
A recession, which is usually marked by high unemployment, could cause people to list their homes as they relocate for new jobs. It could also lead to higher rates of foreclosures, which adds to inventory levels. More inventory at a time of already cooling demand means prices will likely come down.
During previous recessions, larger cities felt the effects much sooner. Ultimately, if you have the financial stability to do so, it is always a good time to buy a home. The biggest mistake most people make is simply when they purchase homes beyond their financial means.
Based on this data, Capital Economics has forecast house prices to rise throughout 2022, before falling by 5% in 2023.
Why might buying a home during a recession be a good decision for some consumers? Housing prices are down. Less demand means more options for buyers. Less demand means less competition with other buyers.
Liquidity. Your biggest risk in a recession is the loss of your job, if you're still employed or semi-employed. If you need to tap your savings for living expenses, a cash account is your best bet. Stocks tend to suffer in a recession, and you don't want to have to sell stocks in a falling market.
Our outlook continues to be that if you are ready and able to build then now is the best time to do it. It is anticipated that interest rates will be on a rising trend throughout 2022 and costs will continue to increase, although the cost increases will be at a more normalized rate.
In the U.S., stocks beat real estate 8.5% to 6.1% in real terms. And they also showed the volatility of real estate prices were lower than stock market returns.
After falling 33 percent during the recession, housing prices have returned to peak levels, growing 51 percent since hitting the bottom of the market. The average house price is now 1 percent higher than it was at the peak in 2006, and the average annual equity gain was $14,888 in the third quarter of 2017.
House prices will also decline as affordability constraints bite, but tight markets and a lack of forced sellers means we expect the drop to be relatively modest, with annual growth falling to -5% by mid-2023," wrote Capital Economics in its latest outlook.
In general, buying a home during a recession will get you a better deal. The number of foreclosures or owners who have to sell to stay afloat increases, typically leading to more homes available on the market and lower home prices.
Federal Bond Funds
Several types of bond funds are particularly popular with risk-averse investors. Funds made up of U.S. Treasury bonds lead the pack, as they are considered to be one of the safest.
Consumer staples, including toothpaste, soap, and shampoo, enjoy a steady demand for their products during recessions and other emergencies, such as pandemics. Discount stores often do incredibly well during recessions because their staple products are cheaper.
Frick says that if the economy does go into a recession, mortgage rates will likely drop to 4% or lower. He also says this may be a good time to wait and save, especially for first-time homebuyers. “The other strategy is to live cheaply and save up,” Frick says. “Home prices are going to cool down.
Barton Wyatt | House prices forecast to jump 50% in next 10 years.
As for the buyers who can afford it, the crisis became a good opportunity to upgrade into a bigger space or diversify their investment portfolio by buying real estate at much affordable prices.
Further, home prices increased 4.6 percent within the past two quarters alone. The reason houses are so expensive right now is simply the result of a supply and demand problem. After the start of the COVID-19 pandemic, interest rates were lowered to help stimulate the economy.
Real estate experts say buyer demand will stay pretty darn strong in the second half of 2022. In May, home sellers received roughly 4 offers from buyers, which is lower than April but still about double the number of offers sellers received per month before the pandemic.
2022 is still a seller's market if you're looking to take advantage – but it's important to note that the market is not as competitive as it was in 2021. You may have heard stories about sellers able to find buyers to take their home as-is, or in some cases, even without an inspection in 2021.
First-time homebuyers will probably continue struggling to buy a home for a few more years. It'll likely take until 2025 for first-time buyers to regain market share, a Zillow survey found. Those buyers represent just 27% of the market right now, according to the NAR.
It shows that home prices increased by 11.3 percent in 2020 and 15.9 percent in 2021, as a result of robust housing demand and record low mortgage rates. According to Freddie Mac's quarterly housing forecast released in April 2022, house value growth in 2022 will be less than half of what we've witnessed last year.