Well, here it is! The shift we’ve all been expecting. Starting in May, you may have noticed a dip in your business and sales volume, or maybe you’re like some of our agents and you are still thriving with both sellers and buyers who are optimistic and not willing to put their financial goals on the shelf over speculation.
Where does your business fall in our current climate? Are you helping your clients navigate this new market, or are you hesitant to speak to the economy?
No matter where your opinion falls, my advice is to be sure you’re educating yourself and your clients. Two of the top questions I’ve been asked by my agents, friends, and past clients is: “What happens to my home value if there is a recession? How do we prepare for a recession? Should we wait to sell until after the economy is more stable?”
As always, my initial reaction is to head straight for the data!
You might be surprised to know - recessions don’t always equal a drop in home prices.
Let’s take a look at how the Federal Housing Finance Agency House Price Index for Orleans Parish has historically responded to previous recessions.
The recession of 1990 and 1991 was caused by the savings and loan crisis, higher interest rates, and Iraq’s invasion of Kuwait. Orleans Parish showed a decrease of 0.6% in 1991 and then an increase of 5.2% in 1992.
Moving forward, our market experienced increases year over year from 1997 to 2007.
Right in the middle of 10 years of HPI increases, another recession struck in 2001—this one caused by the Dot com boom leading up to Y2K (who remembers this needless scare?) and the subsequent dot com bust. In 2001, Orleans Parish held steady with another increase, this time at 6.86% and then an additional 4.93% in 2002.
Let’s keep moving forward…We all know what happened in 2008 and 2009! The subprime mortgage crisis wreaked havoc on the U.S. housing market. From 2008 to 2009, the Orleans Parish market experienced the first major drops in the HPI since 1991.
In 2008: a minor 0.94% decrease; 2009: 1.67%, and 2010: 2.20%. Keep in mind this was also during a recovery period for the Greater New Orleans area following the devastation in our city due to the levee failures after Katrina.
Starting in 2011 and moving towards today, our market has consistently put up increases year over year.
In 2020 the world was dealt a historic and major blow with a global pandemic devastating the world economy. Across the United States we lost record numbers of jobs, experienced major supply shortages, and saw significant loss of life. Despite the tragedy of COVID-19, the HPI showed an increase of 6.72% in 2021.
Now, where do you fall on the spectrum of thought? Is our housing market going to tank, or is it going to remain steady? My opinion is making any assumption about a recession automatically equating to a drop in home values is not warranted.
While some folks may want to sit out of the market due to a possible recession, they do so at the risk of a continued increase in home values—albeit a little slower growth, but growth nonetheless. Bring the data to your listing and buyer presentations—your clients will thank you for your advice.
Data provided by the US Federal Housing Finance Agency HPI
fred.stlouisfed.org
