Share this article!

What is a housing market recession?

In general, a recession refers to a situation when the economy is witnessing a decline in activity. In addition, a fall in employment, income, retail sales and production also come into play, affecting the country’s gross domestic product (GDP). 

Rising unemployment, low salaries and surging inflation mean people cannot afford to pay their mortgages, leading to fewer people committing to buying a home. 

housing recession occurs when the number of sold properties continues to decline for over a period of six months, something the US housing market, for example, has been witnessing since July 2022. Data published by the National Association of Realtors (NAR) for November 2022 showed that existing home sales were down by 7.7% since October 2022 and slipped by 35.4% year-over-year. Meanwhile the median sales price per house rose by 3.5% year-over-year to $370,700. 

Historically, it has been proven that housing prices in a recession take a hit. It could be a good time to invest in real estate. However, it may be harder to qualify for a mortgage. 

By the way, during the Great Depression, for instance, house prices during the recession dropped by 67%.

Lawrence Yun, chief economist at NAR, said in August 2022:

Booking.com
“We’re witnessing a housing recession in terms of declining home sales and home building… However, it’s not a recession in home prices. Inventory remains tight and prices continue to rise nationally, with nearly 40% of homes [on the market] still commanding the full list price.”
 

Top causes for a housing recession

According to Forbes, the two main reasons driving the current housing market recession are surging interest rates and high construction costs. As of 4 January 2023, the most recent interest rate hike by the Federal Reserve (Fed) saw a half a point surge from 4.25% to 4.50% on 14 December 2022. Fed chair Jerome Powell hinted in December that more hikes could be on the way.

Stacy Elmore, co-founder of The Luxury Pergola, SEE Home Improvements, and LouveRoof Luxury Pergolas, told Capital.com that perhaps the main reason for a housing recession at this time are rising interest rates: “Most buyers purchase houses based on monthly payments. With interest rates rising, the monthly payments rise, so the list price has to go down to meet a buyer’s expenses.”

Interest rates and surging inflation are also affecting the cost of construction materials, which already took a hit following a delay in supply during the Covid-19 pandemic. 

 

Reset password

Enter your email address and we will send you a link to change your password.

Get started with your account

to save your favorite homes and more

Sign up with email

Get started with your account

to save your favorite homes and more

By clicking the «SIGN UP» button you agree to the Terms of Use and Privacy Policy

Create an agent account

Manage your listings, profile and more

By clicking the «SIGN UP» button you agree to the Terms of Use and Privacy Policy

Create an agent account

Manage your listings, profile and more

Sign up with email