“Is the real estate market going to crash?” is the question that I get asked the most lately by the people that I talked to. None of us really know what the future holds, and the answer I give you today may be different than the one I will give you tomorrow, but, as of right now, this is the most reasonable explanation of where we stand in the real estate world.
The fear of an impact on the home values is obviously generated by the housing crash of 2006-2008, still visible in the rear-view mirror. What’s taking place today, however, is nothing like what happened then. The S&P 500 did fall by over fifty percent from October 2007 to March 2009, and home values did depreciate in 2007, 2008, and 2009, but, that was because that economic slowdown was mainly caused by a collapsing real estate market and a meltdown in the mortgage market
This time, the stock market correction is being caused by an outside event (the coronavirus) with no connection to the housing industry. Many experts are saying the current situation is much more reminiscent of the challenges we had when the dot.com crash was immediately followed by 9/11. As an example, David Rosenberg, Chief Economist with Gluskin Sheff + Associates Inc., recently explained:
“What 9/11 has in common with what is happening today is that this shock has also generated fear, angst and anxiety among the general public. People avoided crowds then as they believed another terrorist attack was coming and are acting the same today to avoid getting sick. The same parts of the economy are under pressure ─ airlines, leisure, hospitality, restaurants, entertainment ─ consumer discretionary services in general.”
We are all forced to stay home, but luckily many of us can work remotely and virtually while a smaller part of the work force is unable to work. The Government is aware of the financial storm this can cause and help is on the way.
Since the current situation resembles the stock market correction in the early 2000s, let’s review what happened to home values during that time.
Annual Appreciation during dot.com and 9/11:
2000 -> 8.6%
2001 -> 6.6%
2002 -> 8.5%
The S&P dropped 45% between September 2000 and October 2002. Home prices, on the other hand, appreciated nicely at the same time. That stock market correction proved not to have any negative impact on home values.
If the current situation is more like the markets in the early 2000s versus the markets during the Great Recession, home values should be minimally affected, if at all.
Inspiration source: Keeping Current Matters