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Recession Fears Grow, But Economists Say Housing Is OK

Recession fears are growing, and that may prompt some Americans—who are still haunted by the last one—to get skittish about the housing market. Don’t expect another “real estate fire sale” if the economy heads into another recession, economists say.

“This is going to be a much shorter recession than the last one,” George Ratiu, senior economist with realtor.com®, notes in a recent article at the site. “I don’t think the next recession will be a repeat of 2008. … The housing market is in a better position.”

Just 2% of economists, strategists, academics, and policymakers surveyed believe a recession will occur this year, based on a survey of more than 200 members of the National Association for Business Economics. Thirty-eight percent believe a recession will begin in 2020, while 25% say by 2021. Fourteen percent don’t expect a recession until after 2021.

The market still has plenty of good signs for home shoppers. The Federal Reserve has strongly hinted that another interest rate cut is looming in September, which could help bring mortgage rates down even lower. Unemployment continues to hover around the lowest it’s been in the past 50 years. Wages are also growing, and the country continues to be within its longest economic expansion in U.S. history.

If the country does enter into a recession, will home prices plunge like they did during the Great Recession? Many economists don’t believe so.

Ratiu believes home prices could flatten in a recession, but they likely wouldn’t drop. A shortage of homes for sale and a low amount being built should cushion any slowdown in the economy up against buyer demand, economists note. Also, lending laws have tightened since the housing crisis and borrowers are more qualified in securing a mortgage, notes Lawrence Yun, chief economist at the National Association of REALTORS®. Also, homeowners nowadays have a record amount of equity in their homes, so even if they lose their job they likely would be less inclined to head right into foreclosure and more likely to list their home for sale.

Still, the American psyche may play a bigger role if the country hits another recession. “With people having PTSD from the last time, they’re still afraid of buying at the wrong time,” Ali Wolf, director of economic research at Meyers Research, told realtor.com®. “But prices aren’t likely to fall 50% like they did last time.”

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