Zillow: Next Downturn to Have Limited Effect on Housing Market
Aside from the housing-led Great Recession of the late 2000s, home values have traditionally continued to grow through national and statewide recessions over the past 25 years, according to a recent report from online real estate database Zillow.
As the U.S. reached its longest-ever economic expansion this summer, market observers continue to watch for a recession ahead. Zillow’s analysis of recessions from the recent past shows that they often have had a limited effect on the housing market.
Over the past 23 years, there have been two national recessions; the dot-com crash of 2001 and the Great Recession from 2007 to 2009, as well as several statewide or regional recessions. During the Great Recession, home values broadly fell across the country, but in most other cases annual home value growth stayed positive, according to Zillow.
“The housing crash during the Great Recession left a lasting impression on our collective memory,” said Zillow Economist Jeff Tucker. “But, as we look ahead to the next recession, it’s important to recognize how unusual the conditions were that caused the last one, and what’s different about the housing market today. Rather than abundant homes, we have a shortage of new home supply. Rather than risky borrowers taking on adjustable-rate mortgages, we have buyers with sterling credit scores taking out predictable 30-year fixed-rate mortgages. The housing market is simply much less risky than it was 15 years ago, and our experience in recent localized recessions shows how home prices can weather normal economic headwinds.”
Apart from the Great Recession, there have been 1,039 instances since 1997 of states being in a recession in a given month. Annual home value appreciation was positive 81% of the time during those months, which was identical to the rate in months where states were in economic expansion. Appreciation averaged 4.6% during economic growth, compared to 4% during recessions.
According to Zillow, the data suggests that while recessions have an impact on the housing market, the widespread collapse of home values during the Great Recession is an outlier.
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