The housing market is looking a lot more uncertain as a growing number of home sellers and buyers expect prices to fall in the next recession, new research suggests.
Real estate brokerage Redfin conducted two surveys to see how home buyers and sellers expected a recession to affect the housing market. The first survey was given in December 2019 to more than 3,000 adults who bought or sold a primary residence in the past year or who planned to do so in the next year. The second survey was given in March 2020 to more than 1,200 adults who planned to buy or sell a house in the next year.
That three-month time period between surveys saw an increase in buyers and sellers who expect home prices to fall.
Optimism down from last quarter
For someone trying to determine the best time to sell their house, the health of the economy plays a role in that decision. Between December and March, consumers have seen the economy take a hit from the spread of COVID-19, the illness caused by the novel coronavirus. A falling stock market in March and widespread predictions of a looming recession could be contributing to more consumer anxiety. “It’s easy to become fearful when it feels like a recession is imminent,” said Redfin Chief Economist Daryl Fairweather.
Back in December 2019, a majority of respondents were relatively optimistic about home prices faring well in a recession. In fact, more than half — 56% — at that time said they expected home prices in their area would continue to increase during the next recession. Only one-fourth of respondents expected home prices to fall should a recession take place. Another 18% expected home prices in their area to remain flat during a recession.
Fast-forward three months and consumer sentiment has changed. In March 2020, as news of the coronavirus ramped up and stock markets reacted, the largest percentage of respondents — 44% — said they expected home prices in their area to decline, up 19 percentage points from December. Only 32% in March expected home prices to rise in a recession, down 24% from December. In March, 24% expected home prices to remain flat.
Expectations drop the most among younger consumers
Those who are under 45 saw their expectations shift the most. In December, they were more optimistic about housing prices continuing to rise despite a recession than their older counterparts. In fact, in December, 62% respondents under 45 expected home prices to rise during the next recession compared to 43% of those 45 and older.
However, by March, only 31% of respondents under the age of 45 believed home prices would increase during a recession and the percentage who expected home prices to fall had more than doubled from 21% to 47%.
During the three-month period between surveys, the expectations of those 45 and older remained a little more stable. In December, 34% of respondents who were 45 and older expected home prices to fall in a recession. That percentage rose slightly to 39% by March.
While falling home prices may be bad news for sellers, they can pose an opportunity for homebuyers, particularly those buying a house for the first time. Not only might buyers be able to afford a bigger house or one with more desirable features, but first-time homebuyers may be able to take advantage of special loan programs that offer such benefits as smaller down payments, lower interest rates and reduced closing costs.