Home Price Expectations Shift Dramatically as Recession Looms, Redfin Survey Finds

A recent survey by real estate brokerage Redfin reveals a significant reversal in homeowner sentiment, with far fewer people now expecting home prices to rise during the next recession. In March 2020, only 32% of prospective homebuyers and sellers anticipated price increases, a sharp decline from the 56% who held that belief in December 2019. Conversely, the percentage of those expecting local home prices to fall during a downturn jumped from 25% to 44% in the same period. This data highlights growing consumer uncertainty as economic conditions change.

What Do Recent Surveys Say About Recession Expectations?

The change in sentiment is based on two surveys commissioned by Redfin. The first, conducted in December 2019, polled over 3,000 U.S. residents who had recently bought or sold a home or planned to do so soon. The second survey in March 2020 captured the perspectives of more than 1,200 Redfin users. Both groups were asked identical questions about how a future recession would affect home values in their area. The dramatic swing in expectations over just three months underscores how quickly market perceptions can shift with evolving economic news.

How Did the Great Recession vs. The 2001 Recession Affect Housing?

Historical context is critical for understanding why recession impacts on housing are not always predictable. During the Great Recession (2007-2009), which was caused by a housing market crash, home prices declined substantially across the United States. However, during the shorter, eight-month recession in 2001, real home prices actually increased by 4.4%. Redfin’s chief economist, Daryl Fairweather, notes that the 2001 period saw a nascent housing bubble and a shift of investment dollars from the stock market into real estate. This historical precedent shows that a recession does not automatically lead to falling home prices.

Why Are Younger Homebuyers’ Expectations Changing So Quickly?

The most pronounced change in outlook occurred among respondents under the age of 45. In December, 62% of this group expected prices to rise during a recession, with only 21% predicting a decline. By March, the percentage expecting increases was cut in half to 31%, while those anticipating declines more than doubled to 47%. This demographic may be more sensitive to economic volatility and could be weighing the recent memory of the Great Recession more heavily against the historical example of 2001.

What Should Homeowners Do to Prepare for Economic Uncertainty?

Regardless of market predictions, based on our experience assessment, it is a sound financial practice for every homeowner to maintain an emergency fund. This fund acts as a buffer in a worst-case scenario where a home loses value and household income declines simultaneously. Fairweather emphasizes this point, especially for younger homeowners who may have less savings or home equity built up. Proactive financial planning is more reliable than trying to time the market.

The key takeaway is that historical data shows recessions can affect housing markets differently. While current conditions like low mortgage rates and constricted supply may help insulate prices, preparing for potential financial hardship is the most responsible course of action. Homeowners should focus on building a robust emergency fund rather than making speculative bets on future home values.