A recession this year could lead to a much-needed drop in home prices across the country, experts told Newsweek, as rising inflation and uncertainty push aspiring buyers to the sidelines. The ongoing housing affordability crisis, largely due to a chronic lack of supply, skyrocketing home prices, and historically high mortgage rates, has been a top concern for Americans ahead of the 2024 presidential election.
The chances of the US economy entering a recession by the end of the year have increased since Donald Trump introduced sweeping tariffs on April 2. The president’s move imposed a 10% baseline tariff on imported goods, with higher rates for some countries, including 20% on EU imports and 35% on Chinese imports.
Experts predict that a recession could lead to softer home prices, but this would be the result of a significant drop in buyer demand. Higher unemployment would reduce the number of households that can afford a home, further weakening buyer demand, and sellers are likely to lower prices to attract remaining home shoppers.
Mortgage rates fell to their lowest level in six months following Trump’s announcement, giving home buyers more purchasing power. However, if the country enters a recession, mortgage rates could continue to fall as investors lean on bonds for reliable returns versus bigger, riskier investments.
A weakening of the US economy would slow inflation and “the shift of money out of stocks into bonds” would help lower long-term interest rates, according to Lawrence Yun, chief economist at the National Association of Realtors. However, some experts believe that a recession could have a chilling effect on the housing market, with reduced buyer demand and slowing home sales putting downward pressure on home prices.
The construction sector is bracing for Trump’s tariffs, fearing higher costs that would discourage the building of new homes. While construction materials are likely to become more expensive, builders will likely be less motivated to build new homes due to depressed demand.
Overall, experts predict that a recession could have both positive and negative effects on the housing market, with mortgage rates falling but home prices potentially dropping.
Source: https://www.newsweek.com/will-recession-lower-home-prices-impact-housing-market-explained-2055482