The federal reserve just lowered interest rates for the first time since the housing collapse in 2008. At The Reeves Team we have been getting questions from our clients about what a rate cut means for the local housing market in Gilbert. Since the 1990’s every time the Federal reserve has cut rates it has been because a recession was about to occur or because a recession has already started. This has many people worried that another recession is likely. Because of all the feedback we have decided to answer the three most common questions in a blog post.
Will this recession hurt real estate prices as much as the 2008 recession?
The 2008 recession was called the great recession for a reason. The last recession was much larger than most. Housing in Gilbert Arizona dropped by over 40% within the span of months. Wealth that people had worked their whole lives to build up vanished almost overnight. We have a recency bias when we think about recessions that make many of us assume that the next recession will see the same kind of stark decline in house values. If we are entering into a recession it is unlikely that we will see the same kind of widespread losses in the housing market. The biggest reason housing wont be hit as hard is due to the fact that the recession will not be caused by the housing market itself. In 2008 the subprime mortgage fiasco was the reason prices were so inflated, it is also the reason the bubble burst so hard. Lending standards have been much stricter, and while they have been loosening up as of late, we are nowhere near as bad as we were in 2008. We don’t know what will cause the next recession but its unlikely to be housing that starts it.
Will we definitely have a recession?
As we pointed out above, the track record is not pretty. For nearly the last 3 decades when the federal reserve cuts rates we are either in a recession or about to be in one. However if you look back a little further you can find some reason for optimism. In the early 90’s we had just had a long run of growth similar to the one we have just had. As the economy started to soften the federal reserve stepped in and cut rates early. When the fed cut rates back then it ended up lengthening the cycle for a few more years and averted crisis. It is hard to tell if this rate cut will provide a similar situation or if we are already on the path to a recession.
How will Gilbert be affected compared to other areas?
Even if we are about to enter a recession if you own a home in Gilbert you will be in better shape than most. Why? Because people want to live in Gilbert. Gilbert is a fast growing area with great schools and a great social environment. Gilbert is also not as overpriced as some areas of the country such as California and the Hamptons. If you own luxury real estate on the coasts a recession could have a major impact on your property value, also if you have an investment property in an area with declining population a recession could hit these areas hard as well. Gilbert does not have those problems and should hold up extremely well if we do enter a recession.
So what do you think? Are we headed for a recession or do we have a few more years? Let us know in the comments below.