How a Recession Affects The Houston Housing Market

Will a Recession Affect The Houston Housing Market?

In a Market Economy, the state of the economy rises and falls frequently; the U.S. has experienced at least 19 recessions in its history. Eleven recessions have happened since 1948—on average, that is once every 6 years. Chances are, you can remember one or more recessions during your lifetime.

While a recession is based on cold, hard facts—two or more quarters of decline in economic performance—recessions are also very emotional. A lack of consumer confidence or overly-optimistic views of financial potential can lead to a recession. Hope can lead to an end or lack of hope can prolong a recession. Recessions often lead to the loss of jobs or reduced income, whether caused by wage reduction or the reduction in investment income.

The economic indicators are down, but not long enough yet to determine whether this is a “correction” or a “recession.” That has not stopped financial prognosticators from making predictions about U.S. and global economic futures. Personality always enters into these predictions, so the forecast is either very sunny and bright or gloomy with patches of utter darkness. Mathews Group will not make the call concerning a recession, but we can provide some information for both home buyers, home sellers, and the Houston Housing Market in the declaration of a recession.

What Normally Happens During a Recession in the Houston Housing Market

Economists have identified at least twelve causes of economic recessions, including opposite indicators, i.e., too much confidence and too little confidence.1 Normally, the housing market retracts in anticipation of a recession and exuberantly expands at the first glimpse of recovery.

  • As the economy shrinks, people generally buy less. The demand for non-perishable (manufactured) goods drops, leading to layoffs and lower wages.
  • Often, the interest rates drop in response to a recession, as the Federal government and bankers encourage business expansion, wise investment, and capital purchases. The mortgage interest rates usually drop as well.
  • Usually, home prices fall as sellers try to attract a limited number of buyers. The return of a stable job market will trigger buyers to begin moving again.

What Happened This Time in the Houston Housing Market

Each recession to date has been unique. Events such as war, deregulation, the fall of gold prices, and wild stock speculation have triggered recessions in the past. The events that lead to our current market condition are vastly different than most recessions in the past.

  • The U.S. and, generally the global economy, were experiencing a generous expansion in early 2020. This financial boom spurred consumer confidence since the interest rates were low. In the case of the real estate market, low mortgage rates and general job security led to a real estate buying spree.
  • A global pandemic struck in 2020 and threw economic forces askew. Some job sectors expanded tremendously, while other markets shrunk terribly. Working and studying from home was normalized, so the desire for more living space grew exponentially.
  • The Federal government responded to the pandemic by making stimulus money available to almost everyone. A lot of disposable income was available and the money stimulated the economy. The stimulus money was provided by the government but was not necessarily generated by the economy. Since the stimulus dollars had less value, the prices of most products rose to compensate—a situation commonly called inflation. Inflation extended to housing prices.
  • The Fed responded to inflation by raising the interest rate and continued to raise the rate until inflation slowed down. Of course, the mortgage rate followed suit until the mortgage interest nearly doubled.

Most of the “normal” recession responses are turned upside-down. Inflation drove the interest rate up, not down. Housing prices are staying high. Since each economic event is unique, expect new developments to chart an entirely new course in the Houston Housing Market.