Survey: Most buyers would halt home search during recession

Most homebuyers would stop looking for a new residence during an economic recession, according to a recent survey by Realtor.com. However, many real estate economists have also suggested that the housing market would not be hit as hard by an economic downturn as it was in the Great Recession of 2008.

In a survey of 755 active buyers conducted by Toluna Research for Realtor.com, nearly 56 percent of respondents said they would respond to a recession by halting their home search until economic conditions improved. Forty-four percent of respondents said they think the next recession will be less severe than the Great Recession, while 36 percent fear it will be worse and 22 percent expect it to be about the same.

The yield curve for U.S. Treasury bonds has inverted, meaning near-term bonds yield more than long-term ones. This inversion has been a consistent indicator of an impending recession since 1950. Other factors, such as ongoing trade tensions and volatility in the stock market, have also raised concerns about an economic downturn.

"Economic activity is cyclical, so yes, undoubtedly we will face another recession at some point in the future, but we do not expect it to be anything like 2008," said George Ratiu, senior economist at Realtor.com. "The next recession will be driven by factors outside of housing, such as a prolonged trade war, cutbacks in corporate spending, or contagion from a European recession. Unlike 2008, mortgage underwriting has been more disciplined and regulated, which should provide a more secure foundation for housing during the economic ups and downs."

A mortgage crisis accompanied the stock market crash and rising unemployment of the Great Recession. Kelly Anne Smith, writing for the financial site Bankrate, says many homeowners were unable to afford their mortgages or found themselves owing more on their loan than the property was worth. The crisis spurred stricter lending regulations to avoid similar problems in the future.

While the Great Recession was accompanied by a steady drop in home prices, economists don't expect a similar trend if a recession occurs in the near future. Clare Trapasso, writing for Realtor.com, says median home price growth—which has grown on an annual basis for more than seven years—will likely slow down, and could potentially flatten or fall marginally. Smith says home prices only dropped in one of the past four recessions.

However, a recession could impact the housing market in other ways. Trapasso says sellers may hold off on listing their properties until economic conditions improve, while potential buyers would likely postpone their home search if they are affected by layoffs. A recession could also limit new home construction, limiting the number of residences available for purchase.

Recession predictions have varied considerably. According to the most recent Economic Policy Survey by the National Association for Business Economics, just 2 percent of the 226 members polled said they believe the recession will arrive before the end of 2019. Thirty-eight percent said they think a recession will occur in 2020, while 34 percent said they expect one to arrive in 2021.

In a survey of more than 100 real estate economists in the second quarter of 2019, the real estate site Zillow found that half of the respondents believe a recession will start in 2020. Another 35 percent anticipated the start of a recession in 2021.

However, few of these economists said they expect the housing market to be a factor in an economic downturn. Respondents were most likely to cite trade policy as a significant factor in the next recession, along with a stock market correction or a geopolitical crisis.

"Housing slowdowns have been a major component, if not a catalyst, for economic recessions in the past, but that won't be the case the next time around, primarily because housing will have worked out its kinks ahead of time," said Skylar Olsen, director of  economic research at Zillow. "Housing markets across the country are already heading into a potential correction a solid year before the overall economy is expected to experience the same. The current housing slowdown is in some ways a return to balance that will help increase the resiliency of the housing market when the next recession does arrive."

Respondents in the Realtor.com survey were more fearful of a potential recession before the end of the year, with 17 percent saying they expect this to occur. More than 36 percent said they anticipate a recession in 2020, while 14 percent said they think one will occur in 2021.

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