The Great Recession, only twelve short years ago, remains strongly etched in the minds of those who suffered through it. We have an almost PTSD like response to link the terms “recession” and “housing market” together because of that experience. Historically, however, recessions and home values appear to have little correlation, unless of course the recession was created as a result of the housing market, as was the case in 2008. Below is the chart of home appreciation rates during US recessions since 1980:

 

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As you can see, during three of the past five recessions home prices have risen, and in 1990 average home prices dropped less than a percentage. So why might a 2020 recession look a lot different than 2008?

First, like all markets, it’s about supply and demand. Currently there are only 1.3 months of supply of homes for sale in Central Denver. Meaning that if no other homes came on the market and homes sold at the same rate as they had the previous 12 months, we would sell off every available home in about five weeks. The National Association of Realtors measures a balanced market at five months of available homes — we are still in a strong seller’s market.

Secondly, because we are all holed up in our homes, there are fewer buyers out looking at properties. For the same reasons, however, there are fewer sellers wanting to list their homes. The supply and demand are most likely dropping proportionally relative to one another. There are of course, those who need to sell right now, and there are those who need to buy right now. We expect that the market will continue forward pretty much like it has been with the exception that there may be fewer transactions overall.

Finally, homeowners have more equity in their homes than they did in 2008. For those who purchased early after the Great Recession, your market equity is almost as much as the price you paid for your home as median prices have nearly doubled. A report from Black Knight, a mortgage data and analytics company, estimates that borrowers could pull $6.3 trillion in home equity and still retain 20% equity.  In addition, cash out refinanced debt, as seen in the chart below, is substantially lower today than during the Great Recession.