It can make people nervous when home values continue to climb. Will we have another recession? An economic depression? What will happen?
While I can’t read the future and tell you everything that is going to happen, I can look back and see what the housing trends have been during recessions.
A recession is defined as six months where the market (investing/stock market, not housing market) goes down continually.
By that definition, there have been six recessions since 1980. In those recessions, home values went up during four of them and down during two of them.
In our last recession in 2008, homes in Utah county specifically dropped by 25%, which was due to risky, poor lending practices. The scale for how risky a banking investment is says that 400 is a safe risk in lending for a home. During the height of the housing market boom in 2007, there were loans that were at 900 on that scale, which is incredibly risky. Now, after lenders have been burned by that recession, most loans are ranked at a 200, which is ultra conservative.
Based on that, it seems likely that in our next recession, home values will still rise, especially as there are fewer homes in default and foreclosure, thanks to tighter lending regulations.
The biggest concern about the housing market is people using their home like an ATM by opening an equity line of credit to make poor decisions, like buying a car or ATV. If you simply allow the equity in your home to grow and not attempt to withdraw it, you’ll be better protected in the event of an economic downturn.
Do you remember the recession in 2008? How did that affect the way you view buying/selling a home? Comment below!