Recession? The Safer at Home and Stay at Home orders over 90% of Americans are now under many experts are warning of a recession for the American economy, that is if we are not already in one. So, what does that mean for residential real estate? What does it mean for Door County real estate?
What is a Recession?
The National Bureau of Economic Research defines a recession as, “A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normal visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
When COVID-19 arose in mid-march it caused a “hit the pause button” for the American economy, and by the end of March in Door County schools closed, and the Governor’s Safer at Home order took effect shutting down hair and nail salons, bars and restaurants (except for take out), and what are defined as “non-essential” businesses. Door County advised visitors to curtail their visit, lodging establishments closed, and even some parks in the State Park System are closed to the public.
Goldman Sachs, JP Morgan, and Morgan Stanley are all predicting a deep dive in the economy for the second quarter of 2020. While we may not be in a recession yet, by the technical definition of the word today, most experts believe that history will show were in one from April to June.
Does that mean we’re headed for another housing crash?
Some predict that a recession will mean a repeat of the housing crash that occurred during the Great Recession of 2006-2008. History however shows us that most recessions do not adversely impact home values. Mynd Property Management CEO, Dough O’Brien, explained:
“With the exception of two recessions, the Great Recession of 2007-2009, & the Gulf War recession from 1990-1991, no other recessions have impacted the U.S. Housing market, according to Freddie Mac Home Price Index data collected from 1975-2018.”
In a second study of the last five recessions, CoreLogic, found the same. Below is a graph of CoreLogic’s research:
Door County was affected by the Great Recession of 2006-2008, but not as severely as the rest of the country. To learn more about that time call me at 920-493-5472 and I’ll be happy to share my recollections.
What are the experts saying this time?
Here is what three economic leaders are saying about this recession and any housing connection:
Chief Economist with NAHB, Robert Dietz:
The housing sector enters this recession “underbuilt” rather than “overbuilt”…That means as the economy rebounds – which it will at some stage—housing is set to help lead the way out.”
Ali Wolf, Chief Economist with Myers Research:
“Last time housing led the recession…This time it’s poised to bring us out. This is the Great Recession for leisure, hospitality trade and transportation in that this recession will feel as bad as the Great Recession did to housing.”
Founder John Burns of John Burns Consulting also indicated that his firm’s research concluded that recessions caused by a pandemic usually do not significantly impact home values:
“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices).”
If we are not in a recession yet, we are about to be in one. Housing, this time, will be the sector that leads the economic recovery!
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