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Housing Market OK to Weather an Economic Downturn

March 13, 2019
by admin

Folks who follow real estate might be getting a little nervous. Since that category includes almost everyone who owns a home, wants to own a home, or makes money buying, selling, building, or furnishing a home, that could be a lot of edgy people.

And not without reason. Ralph Mclaughlin points out in CoreLogic’s Insights blog that is seems lately as though the roof of the housing market might cave in. There has been a lot of volatility as of late. He cites as examples, a seven straight month decline in the S&P CoreLogic Case-Shiller Home Price Index, a whopping 12 percent plunge in new home at the end of last year, and rising inventories of available homes. Plus, the country is only six month’s short of the longest economic expansion in history. So, he says, “It is understandable why some might think that the housing market and broader cycle is coming to an end.” However, Mclaughlin says, even though there are troubling signs, there are also reasons that the housing market is in good shape to weather a downturn.

The housing market usually does fairly well in a recession he says, and broad and deep troughs in home prices are the exception. During the last five recession only two have resulted in price declines. Prices grew 6.6 percent during the Dot-Com recession in 2001 and by 6.1 and 3.5 percent in the 1980 and 1981 recessions. The two exceptions were a small 1.9 percent dip in 1991 and, of course, the 19.7 percent plunge during the Great Recession

Second, there is a lot of unmet demand. The total inventory of both new and existing homes is only 15.7 units per 1,000 households, up slightly from the record low of 14.9 units in December 2017. This puts the country in a very different supply environment than what existed before the onset of the Great Recession when there was a massive run-up in inventory. This means that prices are unlikely to fall far, if at all, should there be a recession.

And the nation’s demographic outlook means that demand is not likely to abate. Currently about 46 percent of the population is under age 35 and we should expect them to form new households as they enter into the peak marrying and child-bearing years. The Harvard Joint Center for Housing Studies estimates Millennial households will increase by 32 million over the next twenty years. That’s a lot of new homes that will be needed, regardless of whether they buy or rent. Mclaughlin says this household growth should continue to put upward pressure on the housing market until at least 2040.

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