The housing market in the U.S. could enter a recession in under five years, with online real estate company Zillow predicting that it will happen in 2020.
In a research report in which Zillow polled 100 real estate experts and economists about their predictions for the housing market, it disclosed that nearly half of all survey respondents said the next recession will commence in 2020, with the first quarter of the year cited the most as to when the recession will start. The main culprit for the housing recession: monetary policy.
Key Takeaways
- The U.S. housing market has recovered from the 2008–09 financial
crisis, with home prices exceeding the pre-collapse valuation in many
areas. - Despite a record bull market over the past decade, the
housing market in the U.S. could enter a recession in 2020, according to
Zillow. - This prediction is based on their own outlook combined with results from a survey of homeowner sentiment.
What Zillow Thinks
Zillow is a popular website for aggregating real estate price information and gauging market sentiment for homebuyers and sellers. In this research report, several Zillow experts weighed in on the results.
“As we close in on the longest economic expansion this country has
ever seen, meaningfully higher interest rates should eventually slow the
frenetic pace of home value appreciation that we have seen over the
past few years, a welcome respite for would-be buyers,” said Zillow
senior economist Aaron Terrazas in the research report. “Housing
affordability is a critical issue in nearly every market across the
country, and while much remains unknown about the precise path of the
U.S. economy in the years ahead, another housing market crisis is
unlikely to be a central protagonist in the next nationwide downturn.”
Zillow Survey Insights
If the survey respondents’ predictions prove true, the current
economic expansion will be the longest ever recorded. While a housing
collapse ushered in the Great Recession of 2008 and 2009, most survey
respondents don’t think a downturn in the economy will be centered on
the housing market this time around. They think the Federal Reserve’s
actions when it comes to interest rates will be the biggest reason for
the looming recession. After all, if rates go up, it will be more costly
to take out a mortgage, shutting some buyers out of the purchasing
process. They noted that, if the Fed raises rates too quickly, it could
slow down the economy and thus lead to a recession.
Zillow pointed out that, less than a year ago, survey respondents were more concerned with geopolitical issues, citing a crisis on that front as the most likely cause of a future recession. Those worries are now below monetary policy concerns. Other concerns are focused on a trade war with China, a stock market correction, and unexpectedly high inflation. Those same respondents expect the housing market to continue to grow, with home values expected to rise 5.5% this year. At this time a year ago, the real estate experts thought home values would increase 3.7% this year.
“Constrained home supply, persistent demand, very low unemployment, and steady economic growth have given a jolt to the near-term outlook for U.S. home prices,” said Pulsenomics founder Terry Loebs, which conducted the survey for Zillow. “These conditions are overshadowing concerns that mortgage rate increases expected this year might quash the appetite of prospective home buyers.”
News Source: Investopedia.com