Why Home Values Might Surprise You During a Recession

Why Home Values Might Surprise You During a Recession

With whispers of an impending recession, many homeowners and prospective buyers are bracing for a potential hit to home values. It’s a natural concern—economic downturns often bring visions of plummeting markets and financial uncertainty. But what if the data tells a different story? Contrary to popular belief, a fascinating graph from MBS Highway reveals that home values have historically performed remarkably well through the vast majority of recessions. Let’s dive into why this counterintuitive trend holds true and what it means for today’s housing market.

The Recession-Home Value Myth

When we think of recessions, we often picture widespread economic turmoil: job losses, stock market dips, and declining asset values. It’s easy to assume that real estate, one of the largest investments for most households, would take a significant hit. After all, if people are tightening their belts, wouldn’t fewer buyers mean lower home prices?

Not necessarily. The data paints a surprising picture. According to the graph shared by MBS Highway, home values have not only remained stable but often appreciated during most recessionary periods. This challenges the conventional wisdom and prompts a closer look at the factors driving this resilience.

Why Do Home Values Hold Up?

Several key dynamics help explain why home values tend to weather recessions better than expected:

1. Limited Housing Supply: During recessions, home construction often slows as builders pull back due to economic uncertainty. At the same time, homeowners may delay selling, opting to stay put rather than risk entering a volatile market. This reduced supply can prop up home prices, even when demand softens.
2. Low Interest Rates: Recessions typically prompt central banks, like the Federal Reserve, to lower interest rates to stimulate the economy. Lower rates make mortgages more affordable, encouraging buyers to enter the market and supporting home price stability.
3. Real Estate as a Safe Haven: In times of economic uncertainty, investors and individuals often turn to tangible assets like real estate for stability. Unlike stocks or other volatile investments, homes provide both utility (a place to live) and long-term value, making them a preferred choice during turbulent times.
4. Sticky Home Prices: Home prices are famously “sticky” downward. Sellers are often reluctant to lower their asking prices significantly, especially if they’re not in financial distress. This resistance to price cuts can keep values elevated, even in a slower market.

What the Data Shows

The MBS Highway graph highlights several recessionary periods over recent decades, overlaying them with home price trends. In most cases, home values either continued to rise or experienced only modest declines before quickly recovering. For example:

• Early 1990s Recession: Home prices remained relatively flat despite economic challenges and began appreciating soon after.
• Early 2000s Recession: Home values continued their upward trajectory following the dot-com bust with minimal disruption.
• Great Recession (2007-2009): This is the notable exception, where a housing bubble fueled by lax lending standards led to a sharp decline in home values. However, this was an outlier driven by unique circumstances, not a typical recessionary outcome.

Since the Great Recession, home prices have shown even greater resilience, supported by tighter lending standards, low inventory, and strong demand. Even during the brief but sharp economic contraction of 2020 caused by the COVID-19 pandemic, home values surged as buyers sought more space and capitalized on historically low mortgage rates.

What This Means for Today

As fears of a 2025 recession loom, the historical data offers a dose of reassurance for homeowners and investors. While no two recessions are identical, the evidence suggests that home values are more likely to hold steady—or even grow—than to crash. Here’s why this matters:

• For Homeowners: If you’re worried about your home’s value, history suggests you may not need to panic. Real estate’s long-term stability makes it a reliable asset, even in tough times.
• For Buyers: A recession could bring opportunities, such as lower interest rates or slightly less competition in the market. If inventory remains tight, waiting too long might mean missing out on a good deal.
• For Investors: Real estate remains a compelling hedge against economic uncertainty, offering both stability and potential for appreciation.

A Word of Caution

While the data is encouraging, it’s important to acknowledge that past performance isn’t a guaranteed predictor of future results. The Great Recession showed that extraordinary circumstances—like a housing bubble—can lead to significant declines. Additionally, local market conditions vary widely. Areas with strong job markets and limited inventory are likely to fare better than oversupplied or economically struggling regions.

Stay Informed, Stay Ahead

The housing market is complex, but understanding the data can help you make informed decisions. The graph from MBS Highway is a powerful reminder that recessions don’t automatically spell doom for home values. By staying in the know with resources like MBS Highway’s mortgage market news, you can confidently navigate economic shifts.

Whether you’re a homeowner, buyer, or investor, keep an eye on key indicators like inventory levels, interest rates, and local market trends. And don’t let recession fears cloud your judgment—real estate has repeatedly proven that it’s built to withstand the storm.

Michael F Nelson, CEO - Efficient Lending, Inc

720.419.3016 or mike@efficientlending.net or @mike_lending

NMLS: 1876539 NMLS: 1314188

Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Always consult with a qualified professional before making real estate or investment decisions.