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Recession, I’m afraid so, Boston real estate crash – not necessarily
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A recession does not equal a Boston condo 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 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 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.
Boston Condos for Sale and the Bottom Line
I think a recession will be coming however, it doesn’t mean homes will lose value. History proves a recession doesn’t equal a housing crisis.
Recession, I’m afraid so, Boston real estate crash – not necessarily
With Boston and the rest of the country now under a shelter-in-place order, many experts are warning that the American economy is heading toward a recession if it’s not in one already. What does that mean to the downtown Boston real estate market?
What is a recession?
According to the National Bureau of Economic Research:
“A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
COVID-19 hit the pause button on the American economy in the middle of March. Goldman Sachs, JP Morgan, and Morgan Stanley are all calling for a deep dive in the economy in the second quarter of this year. Though we may not yet be in a recession by the technical definition of the word today, most believe history will show we were in one from April to June.
Does that mean we’re headed for a Boston real estate crash?
Many fear a recession will mean a downtown Boston real estate crash that occurred during the Great Recession of 2006-2008. The past, however, shows us that most recessions do not adversely impact Boston condo values. Doug Brien, CEO of Mynd Property Management, explains:
“With the exception of two recessions, the Great Recession from 2007-2009, & the Gulf War recession from 1990-1991, no other recessions have impacted the U.S. housing market, according to Freddie Mac Home Price Index data collected from 1975 to 2018.”
Boston real estate
CoreLogic, in a second study of the last five recessions, found the same. Here’s a graph of their findings:
What are the real estate experts saying this time?
This is what three economic leaders are saying about the housing connection to this recession:
Robert Dietz, Chief Economist with NAHB
“The housing sector enters this recession underbuilt rather than overbuilt…That means as the economy rebounds – which it will at some stage – housing is set to help lead the way out.”
Ali Wolf, Chief Economist with Meyers Research
“Last time housing led the recession…This time it’s poised to bring us out. This is the Great Recession for leisure, hospitality, trade and transportation in that this recession will feel as bad as the Great Recession did to housing.”
John Burns, founder of John Burns Consulting, also revealed that his firm’s research concluded that recessions caused by a pandemic usually do not significantly impact home values:
“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”
