A Recession Doesn’t Equal a Housing Crisis in L.A. and Beverly Hills, CA
A Recession Doesn’t Equal a Housing Crisis in L.A. and Beverly Hills, CA | Christophe Choo at Coldwell Banker Global Luxury is Your Local Real Estate Expert
Everywhere you look, people are talking about a potential recession, and its impact on the housing market. If you’re planning to buy or sell a house in Los Angeles or Beverly Hills, California, you may be wondering if it's still a wise move. However, experts suggest that if we do officially enter a recession, it’ll be mild and short. As the Federal Reserve explained in their March meeting:
“. . . the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
While a recession may be on the horizon, it won’t be one for the housing market record books like the crash in 2008. What we have to remember is that a recession doesn’t always lead to a housing crisis.
To prove it, let’s look at the historical data of what happened in real estate during previous recessions. That way, you know why you shouldn’t be afraid of what a recession could mean for the housing market today.
A Recession Doesn’t Mean Falling Home Prices
To show that home prices don’t always fall during a recession, it helps to turn to historical data. As the graph below illustrates, looking at recessions going all the way back to 1980, home prices appreciated in four of the last six of them. So historically, when the economy slows down, it doesn’t mean home values will always fall.
Los Angeles and Beverly Hills have both experienced strong housing markets, with high demand for luxury homes in these areas. In fact, Beverly Hills has seen a steady increase in home prices over the past few years, and this trend is expected to continue.
Most people remember the housing crisis in 2008 (the larger of the two red bars in the graph above) and think another recession will be a repeat of what happened to housing then. But today’s housing market isn’t about to crash because the fundamentals of the market are different than they were in 2008. Back then, one of the big reasons why prices fell was because there was a surplus of homes for sale at the same time distressed properties flooded the market. Today, the number of homes for sale is low, so while home prices may see slight declines in some areas and slight gains in others, a crash simply isn’t in the cards.
A Recession Means Falling Mortgage Rates
What a recession really means for the housing market is falling mortgage rates. As the graph below shows, historically, each time the economy slowed down, mortgage rates decreased.
Los Angeles and Beverly Hills have seen high mortgage rates in the past, which have impacted the affordability of homes in these areas. However, if there is a recession, history tells us that mortgage rates may fall below the current threshold, making homes more affordable for potential homebuyers.
Bankrate explains that mortgage rates typically fall during an economic slowdown:
“During a traditional recession, the Fed will usually lower interest rates. This creates an incentive for people to spend money and stimulate the economy. It also typically leads to more affordable mortgage rates, which leads to more opportunity for homebuyers.”
You don’t need to fear what a recession means for the housing market in Los Angeles and Beverly Hills, or anywhere else for that matter. If we do have a recession, experts say it will be mild and short, and history shows it also means mortgage rates go down. While there may be some fluctuations in home prices, the fundamentals of the current housing market are strong, and a housing market crash is unlikely to occur.