Here’s a popular belief about home prices: they tank during a recession. Only problem? It’s not true.
Yep! You read it right. And it’s not the only myth about house prices that’s captured the popular imagination. So let’s get myth-busting!
1. Home Prices Crash During Recessions
Here’s the story: During any recession, economic growth declines, and people lose jobs. This leads to a drop in demand, and home prices tank.
Here’s the truth: Home prices have increased during 10 of the last 11 recessions, DESPITE a drop in GDP growth and employment.
People do lose jobs during a recession, and economic activity is definitely affected. However, this does not translate into a drop in home prices.
2. Home Prices Crash When The Stock Market Tanks
We tracked ten instances when the S&P 500 crashed over a 12-month period. Home prices went up during 8 of them!
3. An Increase In Mortgage Rates Leads To A Drop In Prices
This seems like a fairly logical take. An increase in mortgage rates will increase the cost of buying a home. This will hit demand for homes, and cause home prices to drop. Correct?
Here’s the short answer: Incorrect!
Here’s the longer answer: During the last 50 years, mortgage rates have risen by more than 150 BPS (1.5 percentage points) on 8 occasions. Home prices have dropped only once!
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