Are we heading for a housing market recession like in 2008?
I’ve had several people recently ask if the housing market is likely heading towards a recession given the economic shape of the country.
In his Mondays with Matthew segment today, Matthew Gardner, the chief economist at Windermere Real Estate, talked about this topic and compared the condition of the housing market today to that just before the 2008 recession.
Data from Black Knight Financial indicates that there are currently about the same number of active mortgages now (52.9M) compared to in 2008 (53.7M ) meaning it is a good sample size to compare against.
The major difference however is that in 2008 a lot of homeowners were significantly over-leveraged on their loans. Back then, 14.5% of homeowners had less than a 10% equity share in their home. This meant that as economic contractions hit the housing market and deflated values to the point of homeowners being underwater on the loan it made sense for them to abandon the homes instead of continuing to pay the mortgage. This lead to an increase in available inventory and subsequent decrease in values.
Today only 6.6% of homeowners have less than a 10% equity share and according to Atom Data Solutions; 26.7% of homeowners have more than a 50% equity share in their homes. This means that while the US economy heads towards a recession, homeowners, as a whole, have significantly more equity to fall back on than they did in 2008. According to the Federal Reserve, this equity currently stands at about $18.7 trillion.
Matthew Gardner added that he doesn’t foresee a housing market recession. He added that it would be unreasonable to not expect some negative impacts from COVID-19 on the housing sector; total home sales for example is likely to be lower than last year. Home prices may also temporarily drop he forewarned, but he doesn’t expect actual value to diminish long term.
If you would like to monitor the local housing market in Seattle over the next few months, I will be updating my Seattle Real Estate Trends page every month as new data comes out. As your Windermere real estate broker in Seattle I would be happy to answer any questions that you may have.