Housing: Braced for Recession?

Housing has been a casualty of the current economic crisis, and not a cause, but a bubble may still be on the way according to some experts. According to Economic Analyst Jesse Colombo on Forbes, the coronavirus pandemic may act like a “pin” to burst the housing bubble that has been brewing over the past several months.

“As in the last housing bubble, all sorts of shenanigans has occurred during the making of U.S. Housing Bubble 2.0,” said Colombo. “Of course, it’s not shenanigans that is identical to the last housing bubble - “history doesn’t repeat, it rhymes...lightning doesn’t strike the same place twice, etc.” One form of shenanigans that occurred during Housing Bubble 2.0 is the fact that many AirBnB “super-hosts” bought scores of properties with cheap mortgages for the purposes of renting out.”

Mark Fleming, Chief Economist at First American, also notes that the housing market is not immune to the coronavirus impact, but states that the market may be in a better position than many believe. According to Fleming, while housing led the recession in 2008-2009, “this time it may be poised to bring us out of it.”

Fleming points to three factors that make this downturn different than pre-Great Recession:

• The housing market is not overvalued.
• The housing market is underbuilt.
• Equity is at historical highs.

As Fleming notes, house-buying power is now nearly twice as high as the median sale price of home, implying that housing is not overvalued, and is in fact in a much better position entering this potential recession than it was ahead of the last. Additionally, the limited supply of homes positions the housing market to lead the recovery, once the impact from the coronavirus outbreak fades. Homeowners today have very high levels of tappable home equity, providing a cushion to withstand potential price declines.