RECESSION AND REAL ESTATE PRICES: Is there a correlation?

Recession is defined by two declining quarters of GDP. According to the National Bureau of Economic Research (NBER), which is the official body that declares whether the United States is in a recession or not, there is no evidence that we are in a recession. The #2 question people ask is,

Does a recession cause a decline in the real estate market? The answer to that is “not necessarily.” As a matter of fact, over the last five recessions, only two had declining appreciation in the housing market. The last five recessions took place in 1973, 1981, 1991, 2001, and 2008. Housing prices actually went up in 3 of the 5 recession cycles, 1973, 1981, and 2001. Only a mild decline of 7% in real estate prices was experienced in the 1991 recession due to the savings and loan crisis. We all remember the last recession during 2008-2009, which was caused by the subprime mortgage crisis and home prices took a huge dive during the last recession. After that painful experience, the Dodd-Frank Wall Street Reform and Consumer Protection Act were put in place to tighten lending standards. To qualify for the best rates to purchase a home, banks are now looking for a minimum of 2-year stable employments, a decent credit score, and a 20% down payment. Unemployment rates are usually indicative of a recession. The U.S. unemployment rate ranged between 7-10% during the last 10 recessions. However today, as of October of 2019, the U.S. unemployment rate is 3.6%, which is an indication that we are in a very healthy economy. In a recent 60 minute interview of the Chase Bank CEO Jaime Dimon, he said that “this (U.S.) is the most prosperous economy the world has ever seen and it’s going to be a very prosperous economy for the next 100 years.

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