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Busted! 3 Massive Myths About Home Prices

NATIONAL INSIGHTS

Here’s a popular belief about home prices: they tank during a recession. Only problem? It’s not true.

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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.

Home prices haven't crashed during recessions.

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

Right?

Wrong!

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!

Moral of the story? Home prices are resilient!


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