What Happens to The Housing Market During a Recession?

We know that interest rates are on the rise … does that mean the potential for a recession, even a mild one, is on the rise too?

While looking at trends, following data, and revisiting history won’t give us a clear-cut “yes” or “no” answer about an upcoming recession, it does help us understand how the housing market is likely to react if one arises. Here are a few things to expect for the housing market if we find ourselves in that situation.

First, home prices will retain value

After the 2008 recession, lending standards were tightened in such a favorable way for consumers that the challenges we could face during the next possible recession will be completely different than what we saw before. Lenders are more discerning as to whom they lend money to — making the quality of homeownership much stronger than it was in 2008. Since the formation of the Consumer Financial Protection Bureau (CFPB) in 2011, mortgage applicants are thoroughly vetted to ensure that they are not taking on a mortgage that they really cannot afford. The now decade-old strict vetting process empowers consumers, because it ensures that they are qualified (or overqualified) for the mortgages they have — a huge difference from what happened in lending before the 2008 recession.

Previously, homeowners were being approved for mortgages too large for their budgets. And when many people lost their jobs in 2008, the funds to continue covering mortgage payments weren’t there. This led to a flood of foreclosures and an oversupply of inventory, which in turn, sent home values in a downward spiral.

Currently, we’re seeing the opposite scenario — there are many people interested in buying a home with very few to choose from; this helps secure home values even more. Existing homeowners are also less likely to list their homes for sale and trade in the low-rate mortgage that they are likely to have for something new that might be at a higher rate.

Second, bidding wars will cool

For the first time in two years, the housing shortage we’ve been experiencing is starting to ease up. More inventory has come on the market, but a recession doesn’t necessarily mean that it will be easier to buy a home. Pandemic-era mortgage deals with rates in the 2s and 3s are gone, making financing a home a bit more costly. So, what does that mean for us who have future dreams of homeownership?

According to Doug Duncan, Chief Economist at Fannie Mae, “Financial conditions have tightened significantly, and the economy is slowing faster than previously expected as markets adjust to the Federal Reserve’s tightening guidance.” Duncan also mentions that if a recession is to hit, it would weaken demand in the housing market, which could free up more inventory, and show some ease in the current inflation of home prices that some buyers have been experiencing. A positive aspect for those shopping for homes. Housing prices in our specific “hot spot” parts of the country continue to rise yet, but so many others are seeing price relief and market prices level. The slowing of price growth means more stability, but it doesn’t mean prices will go down.

Third, inflation and mortgage rates will flow together

According to the experts, if we’re going to face a potential recession in 2023, better affordability for prospective homebuyers shouldn’t be counted on. Not just because of a housing inventory shortage, but because inflation is at a 40-year high. Inflation and mortgage rates almost always trend together, so when inflation is high, mortgage rates are also high, and when inflation lowers, mortgage rates follow in step.

Just a few months ago, it was more affordable to get a mortgage loan than it currently is today, and mortgage rates could remain steady in the five percent range, as they are now. On the flip side, the good news for buyers is that even mortgage rates hovering in the five percent range  are less than they were for almost 40 years, from 1971 – 2008. And the good news for homeowners is that the value in home prices will likely grow steadily.

The bottom line

Lending standards are much different than they were when the economy faced a recession in 2008, and so, the challenges we face during the next possible recession will also be different. Demand is high, supply is low, and lenders are more discerning as to whom they lend money to — making the quality of homeownership much stronger than before. Plus, the job market is still strong. This, combined with the strict vetting process currently in place to get a mortgage, empowers consumers because it ensures that they are qualified (or overqualified) for the mortgages they have — a huge difference from what happened in lending before the 2008 recession.

Real estate is a long-term investment, and it’s not all about timing the market, but about buying at the right time for your finances, goals and what’s happening in your life.

If you’re in the market to make a home purchase this year, and see how rates are going up, you can rest assured. According to a recent Gallup poll, the best long-term investment chosen by Americans is real estate. Even when inflation increases, as it’s doing now, most Americans agree that an investment like real estate really takes the cake. In fact, real estate has been sitting at the top of the list of best investments for the last eight years and it’s gaining more attention all the time.

When you’re ready to get pre-qualified for a home purchase or refinance, Homespire can help.


This is not an offer for a loan or any type of extension. Eligibility for a loan or extension of credit from Homespire Mortgage Corporation is subject to completion of a loan application, credit, income, and employment qualification, and meeting established underwriting criteria. Rates are subject to change without notice based on market conditions. See Loan Consultant for information on program income limits, buyer contribution, area median income, debt requirements, and other application details.