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The One Thing Every Homeowner Needs To Know About a Recession

Beyond Realty

Real Estate

The One Thing Every Homeowner Needs To Know About a Recession
The One Thing Every Homeowner Needs To Know About a Recession | MyKCM

A recession does not equal a housing crisis. That’s the one thing that every homeowner today needs to know. Everywhere you look, experts are warning we could be heading toward a recession, and if true, an economic slowdown doesn’t mean homes will lose value.

The National Bureau of Economic Research (NBER) defines a recession this way:

“A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators. A recession begins when the economy reaches a peak of economic activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.”

To help show that home prices don’t fall every time there’s a recession, take a look at the historical data. There have been six recessions in this country over the past four decades. As the graph below shows, looking at the recessions going all the way back to the 1980s, home prices appreciated four times and depreciated only two times. So, historically, there’s proof that when the economy slows down, it doesn’t mean home values will fall or depreciate.

The One Thing Every Homeowner Needs To Know About a Recession | MyKCM

The first occasion on the graph when home values depreciated was in the early 1990s when home prices dropped by less than 2%. It happened again during the housing crisis in 2008 when home values declined by almost 20%. Most people vividly remember the housing crisis in 2008 and think if we were to fall into a recession that we’d repeat what happened then. But this housing market isn’t a bubble that’s about to burst. The fundamentals are very different today than they were in 2008. So, we shouldn’t assume we’re heading down the same path.

Bottom Line

We’re not in a recession in this country, but if one is coming, it doesn’t mean homes will lose value. History proves a recession doesn’t equal a housing crisis.

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Why Most People Are Still Glad They Bought a Home With everything going on, it’s understandable if you’re wondering if you’d regret buying right now.  Everyday expenses cost more. Mortgage rates are higher than you’d like. And when the economy feels uncertain, taking on a mortgage can feel like a much bigger leap. But here’s some perspective that may help… Most people who already made that leap would do it again. According to a recent survey from NerdWallet, the vast majority of recent buyers (74%) were glad they bought their current home. Only a very small 3% of people regret it: And here’s a big reason why so many people feel it was worth it, even now. Homeownership Is a Long-Term PlayWhen you’re deciding whether to buy, it’s easy to focus on what’s happening right now. What’s today’s mortgage rate? Are prices going up or down? Those things matter. But don’t get so caught up in buying in the perfect moment that you miss the bigger picture. A home isn’t typically something you buy for just a year or two. It’s a longer-term play. And when you zoom out, it all starts to fall into perspective – especially if you look at home prices and equity. According to data from the Federal Housing Finance Agency (FHFA), home prices nationally have risen 33.4% over just the past five years (see map below): And that appreciation has helped current homeowners build some serious wealth. Research from Bankrate shows homeowners gained an average of nearly $150,000 in wealth over the past five years as equity steadily rose across 90% of major metro areas. That’s one of the biggest benefits of homeownership. As you pay down your mortgage and your home appreciates over time, your ownership stake – your equity – can grow. Now, Zoom Out Even FurtherThe five-year numbers are impressive. But the numbers get even more dramatic when you look at decades instead of individual market cycles. FHFA data shows home prices nationally have risen 336% since 1991. Sit with that for a second. Three hundred percent (see map below):   That doesn't mean prices go up every single year. And it doesn't mean buying is automatically the right decision for everyone today. You should only buy when the numbers (and the payment) work for you. What it does show is why trying to perfectly time the market can make you miss the bigger picture.  Over time, homeowners gain a lot of equity. And that equity can eventually become a powerful financial resource. As Freddie Mac explains:  “Your home's equity is part of your total wealth as a homeowner. If you decide to sell your home, the equity you have built over time will come back to you in the sale. . . If it's time to upsize or downsize, you can use that cash for the down payment on your next home.” Basically, if you can afford to do it, buying a home now could set you up for future moves. And just in case you’re someone who’s worried about what happens if prices do fall, after you buy, remember: you’re not buying for one year. Prices can dip. They have before. But historically, they’ve risen far more over the long run. And the longer you own your home, the more time you have to ride out those ups and downs and keep building equity. Bottom LineDon’t let today’s uncertainty make you lose sight of what homeownership can do over time. Most homeowners say they’d make the same choice again. And decades of home-price growth help explain why. If you’re wondering whether buying makes sense for you right now, let’s look at the numbers together – and what owning a home could mean for you in the years ahead.

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