Some experts are calling for a slowdown in the economy later this year (I personally do not believe that) and many economists have predicted that the next recession could only be eighteen months away. The question is, what impact will a recession have on the housing market?
It is unclear when the next recession will begin or what the catalyst will be. When it comes I believe that the most likely scenario is that real estate will perform better than other asset classes for some fundamental reasons.
In the lending industry there is an adage, “the best loans are made in the worst of times and the worst loans are made in the best of time”. One of biggest the causes of the last economic cyclical bubble bursting was the implosion of the so-called liar / no doc loans (loans that did not require income verification, a job or verification of assets) that were securitized and then the securities were given investment grade ratings.
As result many people were obtaining homes that had no way to make payments or could only pay the initial interest only payments. I even heard of investors purchase homes with almost nothing down and ended with investment properties that required the payment of money out of pocket to make the mortgage payments.
In the end there were a rash of foreclosures, tightening of lending standards and a massive new number of investors rushing into the residential market in search of yield as a reaction the Federal Reserve slashing interest rates.
Fundamentally: 1) we have a smaller percentage of the population owning homes, 2) individuals that own homes have had to undergo vigorous underwriting standards to obtain financing and 3) especially in the smaller single-family residences a huge number of units are owned by individual investors and professional investment companies. For example, the Reven Housing REIT, Inc. (REVN), Invitation Homes Inc. (INVH) and Front Yard Residential Corporation (RESI) are some of the professional real estate companies that have competed with traditional home buyers. These are just some of the reasons hy I believe that residential properties will do well in an economic downturn compared to what was experienced in the great recession.
Here are the opinions to others:
Ivy Zelman in her latest “Z Report”:
“While economic activity appears to have accelerated so far in 2018, some prominent economic forecasters have become more cautious about growth prospects for 2019 and 2020…
All told, while solid long-term demographic underpinnings support our positive fundamental outlook for housing, in the event micro-economic headwinds surface, we would expect housing transaction volumes and home prices to weather the storm.”
Mark Fleming, First American’s Chief Economist:
“If a recession is to occur, it is unlikely to be caused by housing-related activity, and therefore the housing sector should be one of the leading sources to come out of the recession.”
Mark J. Hulbert, Financial Analyst and Journalist:
“Real estate may be one of your best investments during the next bear market for stocks. And by real estate, I mean your home or other residential properties.”
U.S. News and World Report:
“Fortunately – and hopefully – the history of recessions and current issues that could harm the economy don’t lead many to believe the housing market crash will repeat itself in an upcoming decline.”
If you are thinking about buying or selling call me at 949-616-2988.
Posted by John Paul Ledesma, GRI | DRE 01810644 | HomeSmart Evergreen Realty
Real Estate Dispatch 
I think this depends a lot on what happens going forward. If the unemployment rate should increase because of a recession combined with higher interest rates on loans, I think it would hit the real estate business hard. But this will also depend on how large peoples loans are on their houses. MY advice is to never have a bigger loan than 70% of the houses value.
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