What Effect Does a Recession Have on Home Values?

New analysis from Zillow shows that other than the housing-led Great Recession a decade ago, home values have continued to grow despite national and statewide recessions over the past 25 years. 

The U.S. is currently in its longest economic expansion, although growth has slowed in recent months. Zillow’s latest survey found that a panel of housing experts and economists expect that next recession to begin in Q3 2020. The respondents said the demand for housing is expected to cool during the next recession, but a housing slowdown will not be a significant factor. 

Zillow said there have been two national recessions over the past 23 years—the dot.com crash from March to November 2001 and the Great Recession from December 2007 to June 2009. 

While the Great Recession caused home prices to fall across the board, home values remained positive in all other cases. 

According to Zillow there have been 1,039 occurrences since 1997 of states being in a recession during any given month. Home-value appreciation was positive 81% of the time—the same rate when compared to times of economic expansion. 

Zillow also states that appreciation averaged 4.6% during economic expansion and 4% during recessionary periods. 

"The housing crash during the Great Recession left a lasting impression on our collective memory," said Zillow Economist Jeff Tucker. "But as we look ahead to the next recession, it's important to recognize how unusual the conditions were that caused the last one, and what's different about the housing market today. Rather than abundant homes, we have a shortage of new home supply. Rather than risky borrowers taking on adjustable-rate mortgages, we have buyers with sterling credit scores taking out predictable 30-year fixed-rate mortgages. The housing market is simply much less risky than it was 15 years ago, and our experience in recent localized recessions shows how home prices can weather normal economic headwinds."

Since the Great Recession ended in 2009, home prices have grown 50%, according to data from realtor.com. 

"Home prices are going up faster than incomes, and that's led to some of the affordability challenges that we see in the market," said Danielle Hale, Chief Economist of realtor.com. "Homes were basically on sale during the recession. ... [Today's high prices] create a bigger hurdle to get into the housing market."