Published by REALTOR.com | August 21, 2023
Optimism is building that the economy might avert a recession.
The odds are shifting in favor of the U.S. Federal Reserve achieving its goal of bringing down inflation through interest rate hikes without plunging the nation into a downturn—at least for now.
But is a soft landing good for the housing market? Yes and no.
"Another recession is going to happen eventually. It’s really just a question of when.”
Skirting a recession would keep the demand for homes strong. People are generally reluctant to make the largest purchase of their lives and lock in steep monthly payments for the next 30 years if they’re out of work or worried about their job security.
However, a downturn could also bring down high home prices and mortgage rates. It could help to ease the housing shortage as more homes and foreclosures become available.
Many real estate economists believe a recession isn’t likely in the last months of this year, but they aren’t ruling out a downturn in 2024 and 2025. The impact of the Fed’s 11 interest rate hikes is still working its way through the economy.
“The prevailing sentiment is that we’re living through a soft landing, and I don’t think we have enough evidence to support that yet,” says Ali Wolf, chief economist of building consultancy Zonda. “There’s still a reasonable risk that we’re going to see job losses toward the end of this year or early next year.”
Typically, two to three years after the Fed begins raising rates, the economy falls into some form of recession, says Rebecca Rockey, deputy chief economist at Cushman & Wakefield. The Fed started raising rates about a year and a half ago, in March 2022.
“To believe we’ve seen the full impact [of the rate hikes] is probably not a very safe assumption,” says Rockey.
If the Fed doesn’t manage to pull off its soft landing and the economy does slide into a downturn, it’s not expected to be nearly as painful as the Great Recession. Many are optimistic it could last less than a year, and few anticipate mass layoffs on the scale of the late 2000s.
Moreover, today’s homeowners are better qualified to weather a financial storm than they were during the run-up to the financial crisis when it seemed like just about anyone could get a mortgage. That should prevent another wave of foreclosures and any drastic drop in home values.
