Well, in Metro Detroit, mortgage rates shot up, and now the headlines are calling for a recession, and we are now on a stagflation watch. The number one question being asked: Will a Recession Crash the Housing Market in 2024❓

Will a Recession Crash the Housing Market in 2024

There’s been a lot of buzz lately about the possibility of a recession. The thought of a recession raises concerns, recalling the tough times in 2008 in Metro Detroit. However, it’s important to note the unique circumstances that led to the Great Recession. 2008 was primarily driven by high unemployment and rampant overborrowing against home equity. Current indicators and expert analysis suggest we’re in a different situation today.

Jacob Channel, Senior Economist at LendingTree, points out that despite some challenges, the economy is more robust than many believe:

“At least right now, the fundamentals of the economy, despite some hiccups, are performing quite well. While far from perfect, the economy is likely better than many acknowledge.”

Recession Concerns Reemerge

Despite the recession chatter, a recent Wall Street Journal survey indicates a shift in sentiment among economists: only 39% anticipate a recession within the next year, a significant drop from 61% last year. This suggests a more optimistic outlook on the economy’s current strength, which seems to hold up better than many assume.

How Unemployment Impacts Recession Risks

The stability of today’s job market in Metro Detroit further reinforces this confidence. Historical data from Macrotrends and the Bureau of Labor Statistics show that today’s unemployment rates are substantially lower. The orange bar shows the average unemployment rate since 1948 is about 5.7%. The red bar shows that right after the financial crisis in 2008, when the housing market crashed, the unemployment rate was up to 8.3%. Both numbers are much larger than the January unemployment rate (shown in blue).

Now, let’s review the past 12 months of unemployment from Trading Economics. As you can see, unemployment is still historically low. Source: Trading Economics

But Will the Unemployment Rate Go Up?

To answer that, look at the graph below. It uses data from that same Wall Street Journal survey to show what the experts are projecting for unemployment over the next three years compared to the long-term average (see graph below):

Looking ahead, projections indicate that the unemployment rate is expected to remain well below the 75-year average, suggesting stability rather than a spike in job losses.

Although job losses are tough for individuals and their communities, the expected mild increase in unemployment isn’t likely to lead to a significant number of foreclosures or a crash in the housing market.

Does a Recession Automatically Mean Falling Home Prices

It’s a common misconception that home prices always fall during a recession. Home Buyers and Sellers are concerned if a Recession Crash the Housing Market. However, historical data shows that home prices actually appreciated in four of the six last recessions since 1980. This demonstrates that economic slowdowns do not necessarily result in declining home values.

Unlike the 2008 scenario—where a surplus of homes and a flood of distressed properties caused prices to plummet—today’s market conditions are quite different. A dramatic crash is unlikely with a limited housing supply, even if prices adjust slightly. If you want to view a foreclosed property in Metro Detroit, you can now access the multiple listing service. Check it out🤩

Are You Curious about What Home Prices are Now

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What a Recession Means for Mortgage Rates

Typically, mortgage rates tend to decrease during economic slowdowns as the Federal Reserve cuts interest rates to encourage spending and stimulate the economy. This leads to more affordable mortgage rates, creating opportunities for homebuyers.

Currently, mortgage rates have been volatile, mainly reacting to high inflation, with rates fluctuating above 7%. If a recession occurs, we might see rates dip below these levels, although the days of 3% rates are probably gone.

Mortgage Rates and Inflation is a Different Story

Understanding mortgage rates and inflation is essential for home buyers and sellers in Metro Detroit. First, the Fed doesn’t set mortgage rates; it sets policies that affect the 10-year treasury yield and mortgage-backed securities. If you didn’t know, mortgage rates are determined by the 10-year treasury yield rate + the Mortgage-back gap spread will = mortgage rates.

The Fed raised interest rates ten times, which has caused significant issues in the bond and securities market—mortgage rates and economic trends. For the past 50 years, the MBS Gap Spread average was 1.72% (in orange). Today, it’s 2.8%, as shown in the Blue in the 10-year treasury yield. There is a huge difference between mortgage rates due to the MBS gap. When the Fed starts lowering interest rates, the MBS gap spread along with the 10-year treasury yield will go down. To learn about and follow mortgage rates, visit my daily blog post, “Today’s Mortgage Rate: What’s Driving the Change.”

Conclusion

Despite the frequent headlines, the consensus among experts is optimistic, indicating a low likelihood of an imminent recession crashing the housing market. Based on all the data, we don’t need to worry about a recession crashing the housing market in 2024. This forecast and a stable unemployment rate suggest the Metro Detroit housing market will remain resilient. Homeowners and buyers should feel reassured that a flood of foreclosures or a crash in housing prices is unlikely, even if the economy faces minor setbacks. To keep up to date, consider signing up for our Newsletter about the latest trends and updates in Metro Detroit.