The housing market has experienced ups and downs over the last several years, but what would a recession mean for housing?
Yahoo Finance Senior Reporter Dani Romero joins Wealth to discuss the state of the housing market, explaining the varying effects recessions can have on housing prices and demand.
To watch more expert insights and analysis on the latest market action, check out more Wealth here.
The S&P 500 and the Nasdaq both entered correction territory this month paired with a weaker economic data backdrop. It sparked concerns about a possible recession. But according to a new study from First American, there could be a silver lining to a contracting economy here, and it could make housing more affordable for buyers who have been facing mortgage rates between seven and 6%. Here with more in this breakdown, we've got our own Danny Romero.
All right. So what do past recessions tell us about the housing market?
So history has shown us that the housing market can be resilient during challenging times. There's new analysis from First American that shows us that past recessions have varying effects on home sales. So, for example, in 2020, home sales fell dramatically due to the pandemic shutdown. But the drop in sales was really short-lived. The housing market, the housing market quickly recovered during this time due to the record low mortgage rates and also the strong demand. The housing market's performance really relies on two factors. That is the cause of the recession and also the Federal Reserve's moves. So the Fed usually lowers mortgage interest rates when the economists, when the economy slows down to stimulate growth. And as a result, mortgage rates could decline, helping the housing activity, right? So if we took a look, if we take a look at where we are today, mortgage rates have drifted lower from their highs of 7%, but they remain steady around that 6.6%. And economists at Wells Fargo expect that mortgage rates will remain at their current levels due to the economic uncertainty that is happening. But the Fed did signal two rate cuts this year. So we'll have to wait and see how the market really responds to these dynamics that are happening right now.
So would a recession be good, dare I say for the housing market, just not necessarily mean a crash?
Lower rates will stimulate the housing market. It'll bring buyers and sellers that have been really hesitant back into the market. And overall, Brad, the housing market has been sluggish. We've seen ups and downs, and so this would really move the needle here.
All right, Danny. We're going to continue to track this closely. Hopefully, we don't need a recession in order for the housing market to be stimulated, but of course, we're continuing to monitor all the data that spells out the trends. Thanks so much.
