Recession vs Correction

We’re all in agreement that the last few years have been a market like we’ve never seen before, with influences that no one saw coming. Calling it a seller’s market was an understatement. With a record breaking home shortage, each home listed was flooded with buyers, causing bidding wars, raising prices and terms to new heights. But we are finally seeing a shift. The question on everyone’s mind is, “Is this a recession or a correction?”

When we hear “recession” in terms of housing, we often think about the crash of 2008. But when looking at both scenarios side by side, we can see why a similar crash is not in our future. Here are a few reasons why:

  1. Mortgages aren’t being given out like candy
  2. People have more equity in their homes today
  3. Housing inventory is still low historically

These three reasons, working together, create a much less volatile  market. Since banks lending practices have tightened, buyers are securing loans they can truly afford, building their home equity. With more equity in homes, the chance of foreclosure drops. 

The 2020 forbearance program greatly aided in making sure homeowners wouldn’t lose their homes with options like loan deferrals and modifications they didn’t have before. Data on the success of that program shows four out of every five homeowners coming out of forbearance are either paid in full or have worked out a repayment plan to avoid foreclosure. 

Foreclosures, though unfortunate, do add to the market’s inventory. Without them, as well as the fact that people are tending to stay in their home’s for longer than previous generations have, and a lack of newly built homes, our inventory is still at historic lows. In 2008, there was a surplus of newly built homes, which added to the bubble. But slow downs and supply chain issues have severely slowed new construction over the past few years. Additionally, builder’s know the risk of over building, working hard to offload their standing inventory quickly. 

With these three factors at play, a recession like we saw in 2008 is very unlikely. But we are steadily heading toward a market correction with a slow flow of inventory coming on to the market every day, and rising mortgage rates. If you want to learn more about what that might mean for you as a buyer or seller, reach out today, and we can discuss your best course of action!

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