Everyone’s talking about it.
The media is buzzing with fears over the trade war with China, some of our European neighbors’ economies have gotten wobbly, and our nation’s heart-rate seems to be mirroring the stock market’s volatility.
Is a recession around the corner?
As any person at all who has lived more than a couple decades will tell you, economies expand and economies contract. It’s not a matter of if, but when the next recession will hit. So just when will we turn that corner?
Well, more important than when is what?
Recession, not Repeat
The last recession we felt as a nation was the Great Recession—not your typical economic contraction. It left an indelible mark on the psyches of anyone that had to survive it. The housing market plummeted, foreclosures were everywhere, and unemployment doubled.
But there are some serious differences between now and then.
Shady Lending Practices
The collapse of the market in 2007 and 2008 hinged heavily on subprime lending and financial mismanagement in the secondary mortgage market. Lending standards had become loose and loans with interest-only rates and adjustable rate mortgages were divvied out to many individuals considered “high risk of default.”
When home values began to fall and interest rates increased, these subprime borrowers were faced with foreclosure. This housing market collapse was the catalyst for a global recession, from which many places are still recovering. There are many markets that have surpassed their pre-2008 peaks, but some continue to languish.
Housing Market Health
In reaction to this crisis, lending standards have increased significantly, and banks are much more unwilling to hand large sums of money to high-risk borrowers. Moreover, homeowners have, by and large, stopped using their homes as big ATMS and are treating them more like savings accounts. Today’s homeowner has more equity in their home than ever before.
Should home values fall, far fewer homeowners will find themselves underwater than those who did 10 years ago. So are falling home values on the horizon?
Surprising Optimism
While the trade war and the coming election create a lot of uncertainty, data is pouring in to suggest the housing market may be exiting its sales slump and is strengthening again.
The National Association of REALTORS® Chief Economist Lawrence Yun observed that the sales have quickened again (particularly in the Western region) and Freddie Mac recently posted a very optimistic forecast as low mortgage rates have boosted sales.
The market is certainly a much more inviting place for homebuyers today with price growth taking a breath, but fire sale prices don’t look to be around the corner.