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housing market in the face of recession

If There is a Recession, Will the Housing Market Collapse?…

“Recession” seems to be on many people’s minds these days. The memory of the 2008 market collapse is still fresh. The question we want to ask is: Will the housing market collapse like what happened last time?

The market has been extremely volatile last month, aggravated by the uncertainties about the trade war. And for those believing in the cyclical nature of the market, and counting the numbers of good years we’ve had, something is probably coming down the pipeline.

Disclaimer: I am not an economist, nor do I believe anybody could accurately predict the market. So this is only my two cents.

The general consensus among industry experts, which I agree and backed by my professional experience in the banking industry, is that with 90% confidence level, we WILL NOT have a housing market collapse to the degree of what happened in 2008. There are several reasons to back this up:

  • Mortgage financing standards have only slightly eased compared to the tight policies immediately after the market crash, yet it is in no way comparable to the scale of loose lending standards that caused the crash (no doc needed, no income verification, no money down, low credit score requirements, etc).
  • The tight lending environment determined the current homeowners are more financially qualified and are less likely to be foreclosed upon.
  • Homeowners today have a record amount of equity built in. Therefore fewer homes will be actually “underwater” if the market fluctuates. In fact, 4 out of 10 homeowners don’t have mortgages, compared to 3 out of 10 from before 2008. People are less likely to walk away from their homes, like the last time.
  • The demand is there. There are simply not enough inventories in the market. Builders are not building enough homes. Millennials are waiting to get into the market.
  • In the event of unemployment, based on the buffering factors in the above points, people are more likely to sell, instead of being foreclosed upon or abandon their homes.

Uncertainties in the market and possible small scale unemployment could potentially weigh down the housing market, but nothing big like the 2008. I know. I had secretly wished for a market where I could find great deals everywhere. But it doesn’t seem like it’s going to happen. The market still holds strong.

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