MW Some home buyers are hoping for a recession to bring down housing prices. Are they right?

By Aarthi Swaminathan

Some Americans say they want the housing market to crash because they think it would lower home prices and property taxes

Mortgage rates are falling, but home prices remain prohibitively high. That dynamic has prompted some prospective home buyers to say they're holding out for a recession because they expect an economic downturn will force home prices to fall.

They might be in for a long wait. Three economists MarketWatch spoke to said that unless the job market takes a sharp negative turn and many people start losing their jobs, a housing-market crash is not in the cards, and home prices aren't going to fall precipitously.

In fact, depending on the severity of it, a recession could even increase home prices, making it even more expensive to buy a home.

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Home buyers hoping for a recession are in a challenging situation. The U.S. housing market is mired in a state of unaffordability. Homes in America have become so expensive that many fed-up home buyers are choosing to hold off on buying until there's either a drop in mortgage rates or home prices.

The median price of a home sold in early March was about $382,000. With a 30-year fixed-rate mortgage of 6.63%, a buyer has to pay about $2,800 a month in mortgage payments alone.

Even though mortgage rates are broadly falling, mortgage-application data over the last few weeks has shown that most home buyers aren't tempted.

In fact, some say they are waiting for a crash as their opening to get into the housing market. In a December LendingTree (TREE) survey, 36% of respondents said they wanted the housing market to crash, and 29% of renters said a crash would be the only way they could afford to buy. Among people who said they want the housing market to crash, 11% said they believed a crash would lower their property taxes, and 8% said a crash would "help them buy a home."

At the same time, recession fears are mounting. As the Trump administration makes big moves from escalating a trade war against foreign countries to downsizing the federal government, investors have been spooked, sending markets into bear-market territory and sparking concerns of a possible recession on the horizon.

The Trump administration has done little to allay those fears, with both President Donald Trump and Treasury Secretary Scott Bessent downplaying recession fears. U.S. Commerce Secretary Howard Lutnick told CBS last week that Trump's policies were "worth it" even if they push the U.S. economy into a recession.

But would a recession make home prices fall?

Widespread job loss could lead to 'softening prices, a phenomenon we have not seen in a long time'

Danielle Hale, the chief economist at Realtor.com, said that recessions come in a variety of flavors. And the flavor plays a role in how the housing market will be impacted.

"The two most recent recessions alone provide a broad scope of possibilities," Hale told MarketWatch.

The pandemic-induced recession of 2020 was a lot more gentle on the housing market than the global financial crisis of 2007-09. Between February and April 2020, the U.S. economy faced widespread closures of businesses to stop the spread of the coronavirus. At the time, home sales fell sharply, Hale said, but after two months, sales recovered quickly, and even surged thereafter. Home prices also surged over that period, as buyers snapped up homes at ultralow mortgage rates.

But during the lengthier and more severe recession, home sales slowed and remained low for a prolonged period of time, Hale said. The financial crisis was caused by reckless mortgage lending which led to the subprime mortgage crisis, and millions of homeowners lost their homes to foreclosure.

Home prices had begun falling even before the recession began in December 2007, Hale said, "and continued to do so until eight months after the recession ended, falling by more than 20% cumulatively."

Neither of those scenarios is similar to what home buyers could face today if a recession happened.

The housing market has been facing two years of rock-bottom home sales, due to a persistent shortage of homes for sale. Homeowners are not interested in giving up the rock-bottom mortgage rates they got during the pandemic. That has resulted in demand outpacing supply.

On top of strong demand for homes, which allows homeowners to sell for a good price, people who own properties also have a big financial buffer in the form of their current home. The average homeowner with a mortgage gained $4,100 in home equity between the last quarter of 2023 and 2024, and had $303,000 in total home equity at the end of 2024, according to CoreLogic, a real-estate data company.

In other words, if there was a short recession without widespread job losses and the government stepped in to support consumers as it did during the pandemic with stimulus checks and other measures to prevent foreclosures, home prices might not fall, she said.

On the other hand, if many homeowners lose their jobs during a downturn, or feel increasingly stressed financially and are unable to make their mortgage payments, a recession could prompt a surge in homeowners putting their houses up for sale, she said. That could result in "softening prices, a phenomenon we have not seen in a long time."

'Falling home prices have not always accompanied recessions'

Overall, home prices tend to be pretty resilient, based on how they have historically performed.

A 2019 study by Zillow $(ZG)$, which looked into recessions in all 50 states in the U.S. between 1996 and 2018, found that even when overall economic activity slowed down, home prices mostly grew. The one notable exception where prices did not grow was the 2007-09 recession, which was a result of the subprime mortgage crisis.

During the recession, "home values did fall broadly across the country," Zillow said.

But looking at home prices in each state between 1996 and 2018, the author found that across various state and national recessions - from the 2001 dot-com bust to state-level downturns resulting from a dramatic drop in oil prices around 2015 - "home value appreciation was positive 81% of the time.""The bottom line," Zillow's analysis said, was that "falling home prices have not always accompanied recessions in the 21st century."

On top of that, the underlying housing market is in a different place compared with 2007. "Unlike with the global financial crisis, the typical homeowner is in a much more stable financial position with very low mortgage payments and much higher housing wealth," Kara Ng, a senior economist at Zillow, a real-estate platform, told MarketWatch.

About 7 in 10 homeowners have an outstanding mortgage with a rate below 5% as of the third quarter of 2024, Ng said, citing data from the federal government.

As a result, "in the event of a mild economic shock, mortgage delinquency rates are likely to remain low," she added, "and the flow of homes coming on the for-sale market could fall, preventing a large price decline."

Home prices went up during the pandemic-era recession

Nonetheless, don't rule out the possibility of a recession creating a home-price crash, Selma Hepp, chief economist at CoreLogic, told MarketWatch.

"Generally, if recession is accompanied with significant job losses, there could be a jump in for-sale inventory, which would lower home prices and drive up foreclosure activity," Hepp said.

Whether home prices will go up or down will "largely depend on what's going on in the labor market and rate of unemployment," Hepp explained. "If there is a spike in unemployment, home prices could come down," she continued, "if there is a jump in for-sale inventory."

The unemployment rate crept up to 4.1% in February from 4% the previous month, according to the most recent data available.

On the other hand, if a recession hits the U.S. economy and mortgage rates drop, but people remain mostly employed, "we could see something akin to the pandemic recession [and the impact on the] housing market [where] home prices did go up," Hepp said.

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-Aarthi Swaminathan

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March 19, 2025 11:46 ET (15:46 GMT)

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