Why the Economy Won't Hurt the Housing Market

Why the Economy Won’t Tank the Housing Market

If the prospect of an impending recession is causing concern, you're not alone. Over the past few years, discussions about a potential economic downturn have been prevalent, leading many to worry that it could result in a significant increase in the unemployment rate. Some even express fears that a surge in unemployment might trigger a wave of foreclosures reminiscent of what occurred 15 years ago.

Nevertheless, the most recent Economic Forecasting Survey conducted by the Wall Street Journal (WSJ) brings a shift in perspective. For the first time in over a year, less than half (48%) of economists surveyed believe that a recession is likely to occur within the next year.

Economists are turning optimistic on the U.S. economy . . . economists lowered the probability of a recession within the next year, from 54% on average in July to a more optimistic 48%. That is the first time they have put the probability below 50% since the middle of last year.”

If more than half of the experts no longer anticipate a recession in the coming year, it's reasonable to assume that these experts also don't foresee a significant surge in the unemployment rate – and that assumption would be correct. The graph below utilizes data from the aforementioned WSJ survey to precisely illustrate the economists' projections for the unemployment rate over the next three years (refer to the graph below):

 

If the predictions of those experts hold true, there will be an increase in job losses in the coming year. Job losses of any nature can be devastating for the individuals affected and their families.

Yet, the critical question here is whether these job losses will be substantial enough to trigger a wave of foreclosures capable of crashing the housing market. Drawing on historical data from Macrotrends and the Bureau of Labor Statistics (BLS), the answer appears to be negative. This is primarily because the current unemployment rate is close to all-time lows, as depicted in the graph below:

 

Illustrated by the orange bar in the graph, the average unemployment rate dating back to 1948 stands at 5.7%. In contrast, the red bar indicates that during the last housing market crash, in the immediate aftermath of the 2008 financial crisis, the average unemployment rate surged to 8.3%. It's crucial to note that both of these bars represent significantly higher rates than the current unemployment rate, depicted in the blue bar.

Looking ahead, forecasts indicate that the unemployment rate is expected to remain below the 75-year average. This implies that there won't be a surge in foreclosures significant enough to severely impact the housing market.

Bottom Line

Most economists no longer expect a recession to occur in the next 12 months. That’s why they also don’t expect a dramatic rise in the unemployment rate that would lead to a rash of foreclosures and another housing market crash. If you have questions about unemployment and its impact on the housing market, connect with a real estate professional.

Post a Comment