TR-HNR-January-2019-Digital

FEATURED ARTICLE: 2019 HOUSING OUTLOOK

Do you expect a recession in 2019 or 2020, and if yes how will that impact the housing market? 6

“A recession could have mixed effects, lowering sales but also lowering rates, which could support prices.”

TERRAZAS: We do not expect a recession in 2019. If a recession does occur in 2020, the housing market will not be at the center of the downturn. KIEFER: Many analysts have called for a recession in the next two years, but that’s not my expectation. There’s certainly a risk, and imbal- ances in the broader economy have been rising over time, but I think the economy will remain on track the next two years. However, if the next recession does hit in the next two years, I don’t anticipate housing to be hurt nearly as much as in the Great Recession or even a typical reces- sion. A rise (in) unemployment and a drop in income would choke off housing demand and hurt housing “The recession itself will likely be caused by the Federal Reserve raising interest rates too quickly or the U.S. Administration continuing its trade war with China. As far as housing is concerned, I really do not see much in the way of an impact.”

TENDAYI KAPFIDZE

markets, but unlike a decade ago there isn’t that much excess supply on the market and there’s substan- tial pent-up housing demand. If the next recession hits after interest rates have normalized, there may be room to stimulate the economy through lower rates. Unlike after the Great Recession, the housing mar- ket recovery after the next reces- sion may be exceptionally strong. KAPFIDZE: A recession is not our base case, but the risk is rising. A slower growing economy will be more vulnerable to adverse shocks. The impact would depend on the type of recession. The odds of a 2008 type recession are slim, given that excesses in the economy have not built up in a similar way and the housing sector is unlikely to be a catalyst for recession; 1991 and 2001 are likely better years to model a coming recession with regards to housing as the housing sector was not a proximate cause. In both those cases the existing home sales declined marginally, new home sales fell more sharply but home prices proved resilient as they actually benefited from lower rates. Thus, a recession could have mixed effects, lowering sales but also lowering rates, which could support prices.

ZANDI: Recession risks will be highest in 2020. The fading of fiscal stimulus — deficit-financed tax cuts and government spending increases which are currently juicing-up growth — and higher interest rates, will cause

GARDNER: My current forecast is for a business cycle recession to start at some point in 2020. The reces- sion itself will likely be caused by the Federal Reserve raising interest rates too quickly or the U.S. Administration continuing its trade war with China. As far as housing is concerned, I really do not see much in the way of an impact. Historically, recessions cause home prices to pause, not go down. This has been the case in every recession since the 1970s with the exception of the Great Recession in “Unlike after the Great Recession, the housing market recovery after the next recession may be exceptionally strong.”

2008, which was specifically caused by the crash of the housing market.

Economist

Recession in 2019 or 2020?

Zandi

Highest risk in 2020

Yun

No in 2019, less certain in 2020

DUNCAN: Our base forecast points to a continued economic expansion, with economic growth moderating in 2020 from 2.3 percent in 2019. Howev- er, with growth slowing in coming years, a shock to the economy could lead to an economic downturn. For example, escalating trade tensions with our major trading partners could erode business confidence, leading business owners to postpone investment and hiring plans. Alternatively, a geopolitical turmoil that leads to a surge in oil prices would likely prompt the Fed to be more aggressive in raising interest rates, which could, in turn, derail the expansion. History tells us that engineering a soft landing is hard to do. In the event of a mild reces- sion, housing could provide a cushion for the economy. The Fed would cut interest rates, and if unemployment rose only moderately, there could be some demand for housing.

Terrazas

No No

Kiefer

Kapfidze Gardner Duncan

No, but rising risk

Yes, in 2020

YUN: No recession in 2019 because of housing as positive contributor. 2020 is less certain with GDP just a hair above zero. There is still a need to build more homes from the accumu- lated inadequate production of the past decade. So the housing will be a positive contributor to the economy, (and) thereby soften any negative fall- out from (a) stock market correction or slowdown in business spending activity. Government spending will also act as a buffer with much needed infrastructure investment set to rise.

growth to slow substantially by 2020. The rapid growth in leveraged lending to nonfinancial businesses and liquid- ity constraints in the shadow financial system are mounting vulnerabilities to the current expansion. Housing demand, construction and housing prices will suffer in a recession, but not nearly to the same extent as in past downturns. Cushioning the im- pact of recession on housing are the current record low vacancy rates, and while house prices have risen strong- ly since the housing bust, valuations are not a serious threat.