There is a 73% chance the next recession in the United States will begin by the end of 2020, according to a panel of economic and housing experts but the property market is unlikely to be hammered.
Those taking part in the third quarter Zillow home price expectations survey don’t expect the housing market to play as big a role as in past recessions. Instead, they anticipate a geopolitical crisis could trigger the next recession.
The quarterly survey sponsored by Zillow and conducted by Pulsenomics LLC, asked more than 100 real estate experts and economists about the next national recession, its causes, and the potential effects on the housing market.
The panellists expect a future recession to have a moderate impact on the US housing market overall, but some markets are more at risk than others. More than 60% of experts say the next recession will have a major impact on the San Francisco and Miami housing markets, and at least half predict a major impact in Los Angeles and New York as well.
‘That experts believe geopolitical crisis is the most likely next trigger for the next recession is a sign of the times we’re living in. Historically, geopolitical events rarely cause a sustained recession, and other contributing factors, such as oil price shocks, play a more predominant role,’ said Zillow chief economist Svenja Gudell.
‘We’ve enjoyed eight years of sustained growth following the last recession, but the housing market is still recovering in many ways. The housing market is not expected to cause the next recession, but some major markets could see some collateral damage,’ she added.
The report points out that it was unsustainable home price increases and lax lending standards that led to a significant decline in the housing market 10 years ago, kicking off the last recession. Nationally, homes lost 23% of their value and more than 50% in the hardest hit metros. This crash led to a widespread economic recession, with high unemployment rates and slow wage growth.
This recession is still being felt after several years of recovery. Even as some housing markets set record highs, home values in 55% US markets are below the peak values set during the bubble years, and five million home owners are still underwater on their mortgages. Wage increases have only recently picked up after several years of relatively stagnant growth.
Despite the expected impact on the housing market, the survey respondents expect home values to continue to appreciate at a healthy pace. The current expectation is for home values to rise 5.1% in 2017, up from 4.4% earlier this year.
‘Stronger short term expectations for US home prices are a sign of the persistent inventory challenges facing first time and move-up home buyers, but experts’ long term predictions suggest that buyers will have more bargaining power in the years ahead,’ said Pulsenomics founder Terry Loebs.
‘Incomes growing faster than home values is a promising sign for renters hoping to become homeowners, but they should still tread carefully in markets that have seen sharp price increases in recent years,’ he concluded.