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recession

The “R” word in real estate

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I’m starting to hear so much more chatter about the “R” word, so let’s talk about it. What happens to the housing market during a recession? What happens to homes prices and jobs? I have some new visuals to help us talk through this. Also, let’s look at some spicy issues to keep an eye on.

NOTE: There are many places to rant about politics, but not here. I won’t approve comments that are only political and don’t add to the conversation.

UPCOMING SPEAKING GIGS:

3/6/25 Yolo Association YPN Event
3/12/25 Windemere Sierra Oaks
3/20/25 HomeSmart iCare Realty (private I think)
4/2/25 SAFE Credit Union (details TBA)
4/10/25 Yuba-Sutter Association (details TBA)
4/15/25 Culbertson and Gray (private I think)
4/24/25 KW EDH (private I think)
5/8/25 Private event (details TBA)
5/13/25 PCAR
6/5/25 Auburn Marketing Meeting
9/26/25 PCAR
11/4/25 SAR Main Meeting

DEEP THOUGHTS ABOUT THE “R” WORD:

Are you hearing more people talk about a potential recession? I’m seeing lots of chatter on social media, so let’s dig in. What happens to the housing market during and after a recession? Let’s have some conversation.

1) PRICES DON’T ALWAYS GO DOWN DURING A RECESSION

Lots of people say prices go down during a recession, but what do the stats show? Well, sometimes prices do drop or flatten. But other times they don’t. If the images below were all white in the background, and I asked you to guess where the recessions were, it would be really challenging to be right about all of them. Stats: Quarterly median sales price and Freddie Mac Price Index.

2) LOCAL MARKETS COULD BE DIFFERENT

National stats are cool, but let’s always try to digest local trends. So, here’s what Sacramento looks like. It’s hit and miss, right? Sometimes prices dip after a recession, but sometimes the market goes up. It’s not just one thing. 

And in case you’re longing for an inflation-adjusted image…

3) UNEMPLOYMENT RISES DURING A RECESSION

Like clockwork, the unemployment rate shoots up during a recession (or it could start to increase before one happens). This is true in the United States and locally. If you want to see an image that really drives this point home, check out the United States from 1948 onward.

4) THE GREAT RECESSION ISN’T THE NEW TEMPLATE

What happened in 2008 isn’t the new template or formula for every future recession and housing market correction. I don’t say this to sugarcoat since there is nothing wrong with home prices going down. Let’s just recognize not every recession is the same in severity or length, so it makes sense to not impose what happened during the Great Recession onto every future market. All that said, there is no mistaking we’re seeing consumer debt and delinquencies growing. Real estate friends, check on your people.

Some closing hot issues:

5) POLITICS COLLIDING WITH REAL ESTATE:

Here are three quick topics I’m watching. This is NOT a partisan post, and this is not controversial, but sometimes housing and politics collide, so we need to digest this stuff together.

HIGHWAY TO THE TARIFF ZONE

We want to watch the economy closely as we’ve entered a tariff era under President Trump. Only time will tell how this affects prices for consumers, and so much of it depends on how long these tariffs last. In terms of real estate, there are definitely a few things we want to fixate on. Let’s look at consumer confidence, purchasing power, mortgage rates, and the price of new construction.

GAVIN NEWSOM CALLS STATE WORKERS BACK

This week Governor Newsom called state workers back to the office. This is going to be a massive lifestyle change for so many residents. In terms of the housing market, my inclination is to think this isn’t going to mean much for the residential market since many people will simply start commuting to work again without selling or buying a different home. There are some workers though who moved out of state or area, and now they have a decision to make about whether to come back or stay put. There could be others who use this as a catalyst to make a lifestyle change though – downsize, retire, move elsewhere, find a different job, etc…

ELON MUSK CUTTING FEDERAL JOBS

Let’s pay attention to federal jobs being cut across the country from Elon Musk’s DOGE (Department of Government Efficiency). This could matter for locals since we have over 14,000 federal jobs in Sacramento according to FRED data. It’s not clear yet how many jobs will be cut, but let’s keep this on the radar. On a personable note (and not a partisan statement), I want to encourage those speaking out in favor of the cuts to be aware there could be locals losing jobs who are reading your posts.

Thanks for being here.

LEAVING COMMENTS: There are many places to rant about politics, but not here. I won’t approve comments that are only political and don’t add to the conversation. The captcha is not working perfectly.  If you open up a new browser, that should solve the issue. It’s been a problem for some when clicking over from my weekly email and trying to comment. My apologies. I hope to have this solved eventually.

Questions: What stands out to you the most above? Have you been having more “R” word conversations? Anything else you are watching in the market right now?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

The coming recession & the housing market

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The coming recession is a huge topic right now and lots of people are wondering about the effect on home prices. What’s going to happen to the housing market? Will we see another crash? Here are a few thoughts on my mind right now. Anything to add? Please comment below.

Last time isn’t the new template: The collapse of the economy during the last recession isn’t the new template for how every future recession and housing market will unfold. I’ve heard things like, “I’m so ready for this recession because I’m going to buy low after values tank.” But prices don’t always crash during a recession as you can see in the images below.

Severity matters: It’s hard to think the housing market is going to be swayed much if it’s a quick recession. But if buyers and sellers end up struggling financially and losing jobs, we can expect a greater effect on home prices (thanks Captain Obvious). The thing is we don’t know right now how severe of a recession we’re going to have, so that’s why we can’t say exactly what the housing market will do.

Consumer behavior: One thing we need to watch is consumer behavior. How will consumers think and act differently in coming time about their purchasing decisions? As I talked about last week, during a recession builders actually tend to build smaller homes since consumers tighten up their finances. This reminds us the way consumers think and act can certainly shape real estate.

Locations aren’t the same: It’s nice to see what national price metrics have done during various recessions, but national numbers can show a different trend than local data.

What do prices do during a recession? Sometimes prices have gone down and other times they’ve gone up during (or after) a recession. There’s not a one-size-fits-all answer. In Sacramento at least most of the time there’s been a price dip during or after a recession. If you’re looking for some historical data in your market, I suggest you check out the Freddie Mac Price Index.

During & After: I’ve seen some images that show home prices have appreciated during three of the past 5 recessions. That may be technically true on the national level, but we have to be sure to look at local stats. Moreover, let’s not narrow our focus to only ask what happens during a recession. What about afterward? What do you see in the images below? 

UPDATE (OCTOBER 2019): I put together a quick presentation to download to help zoom in on various local recessions since these images show a more panoramic view. Enjoy if you wish.

UNITED STATES:

CALIFORNIA:

SACRAMENTO:

Don’t get too stuck on prices: When we think about a recession, let’s of course watch prices, but the bigger story will likely be found in what happens to the number of sales. Are buyers playing the market or are they backing off? In short, let’s not forget to watch sales volume because we’re so obsessed with prices.

The inverted yield curve (and hesitancy): Lots of people are talking about the inverted yield curve as an indicator of a coming change in the economy. For now I don’t hear buyers saying things like, “Maybe I shouldn’t buy because of the inverted yield curve…” Okay, I’m joking in part because most buyers aren’t going to be making a decision based on this metric. But to be fair there’s been a sincere hesitancy among some buyers because they feel uncertain about what the future market is going to do. By the way, thanks to Alex on Twitter for the “inverted” Top Gun reference. This is golden.

Hype: Everyone has a take right now and there is lots of hype about what the market will or won’t do when a recession hits. Some preach doom and gloom and others are doing their best to paint a rosy view of housing. My advice? Let’s do our best to let the actual market influence what we are saying about the market instead of getting caught up in someone’s talking points or agenda.

Making predictions: There are many predictions about a coming recession, and at some point one will happen. But predicting recession specifics is a bit like predicting housing market specifics. At the end of the day we might have ideas, but we don’t know the exact future until it happens.

I hope this was interesting or helpful.

BIG MARKET UPDATE I’M GIVING: I’ll be giving a deep market update at SAR on September 24th from 10:30-12:00pm. My goal is for everyone to walk away with an understanding of how the market is moving, ways to describe it, and some ideas for business in 2020. Sign up here.

Questions: What has been your experience with real estate and recessions? What are you hearing from buyers and sellers right now? Any stories to share?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Dude, people want smaller homes (sort of)

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Tiny homes are all the rage these days on HGTV, but most people would never pull the trigger on something that size. But the truth is homes in the United States are actually getting smaller lately. Well, sort of. Let’s talk about it.

Why this matters: Knowing a real estate market isn’t just about prices, but understanding what is happening to the housing stock.

Bigger homes in the United States (except lately): New homes seventy years ago were literally one-third the size they are now. So clearly buyers expect much larger homes today. But when looking at recent stats, the size of new homes has actually shrunk over the past few years according to the National Association of Home Builders. Why the shrinkage? Lots of people chalk it up to younger buyers entering the market and needing lower prices. Keep in mind new homes are still an average of 2,300+ sq ft though, so even if buyers are craving smaller homes, these dwellings are massive compared to decades ago.

How has home size changed in Sacramento? Like the United States, homes have definitely grown in size over the past two decades in Sacramento. In fact, based on MLS sales since 1998 we’ve seen the average home size increase by 11.6% and the median size increase by 15.2%.

What happens to home size during recessions? What’s going on with the dip in size after 2007? According to the National Association of Home Builders, the historical pattern is to see new home size fall after recessions as buyers tighten their budgets. Then as the economy improves we tend to see home size increase. The interesting part is we see this trend among new homes nationally and with MLS sales locally.

CLOSING THOUGHTS:

1) Baby Boomers & Millennials: In coming time we’re going to have lots of Baby Boomers downsizing and looking for smaller homes. As for Millennials we’ll keep learning what they want as they enter the housing market.

2) Marketability during recessions: With so much talk about a coming recession, let’s keep an eye on larger homes. Will they be less marketable during the next recession? Will buyers tend to gravitate toward smaller homes? These are key questions.

3) Smaller but not inexpensive: New homes have shrunk in size these past few years, but we’re nowhere near being able to call them inexpensive. The irony of course is society tends to expect new construction to be affordable for first-time buyers, but new homes are actually more expensive by virtue of being brand new. The truth is less expensive homes tend to be found more readily in the older housing stock instead of brand new subdivisions. It’s like shopping for a used car instead of the latest shiny brand new model.

I hope this was interesting or helpful.

BIG MARKET UPDATE I’M GIVING: I’ll be giving a deep market update at SAR on September 24th from 10:30-12:00pm. My goal is for everyone to walk away with an understanding of how the market is moving, ways to describe it, and some ideas for business in 2020. Sign up here.

Questions: What are you hearing from buyers and sellers about size? Any stories to share?

If you liked this post, subscribe by email (or RSS). Thanks for being here.

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