The thought of a recession can be daunting for many people, as it can bring about job losses, economic uncertainty, and a drop in home prices. However, history has shown that going into a recession can actually be beneficial for home prices and appreciation in the long run. In this blog, we will explore how going into a recession has historically helped home prices and appreciation.
Firstly, it’s important to understand that a recession is typically characterized by a slowdown in economic activity, including a decrease in consumer spending and business investment. This can lead to job losses, reduced wages, and a decline in demand for goods and services. However, during a recession, interest rates also tend to drop, which can make it more affordable for people to purchase homes.
Lower interest rates mean that people can borrow money at a lower cost, which can lead to an increase in demand for homes. This increased demand can drive up home prices and lead to appreciation in value. In fact, according to a study by the National Bureau of Economic Research, home prices increased during seven out of the last eight recessions.
Another factor that can contribute to the rise in home prices during a recession is the decrease in new home construction. During a recession, builders may put new construction on hold, which can lead to a shortage of available homes on the market. This shortage can drive up the prices of existing homes, leading to an increase in appreciation.
Additionally, a recession can often lead to a decrease in housing supply, as people may be reluctant to sell their homes during a period of economic uncertainty. This can further increase the demand for homes and lead to higher prices and appreciation.
It’s worth noting that while a recession can lead to an increase in home prices and appreciation, it’s important to consider the overall economic climate and the individual circumstances of the housing market. For example, if a recession is caused by a housing bubble or an over-inflated market, then the drop in home prices during the recession may be more severe and longer-lasting.
In conclusion, while a recession can bring about economic uncertainty and job losses, historically it has lead to an increase in home prices and appreciation. Lower interest rates, a decrease in new construction, and a shortage of available homes on the market can all contribute to the rise in home prices during a recession. However, it’s important to consider the overall economic climate and the individual circumstances of the housing market before making any investment decisions.