Many of our clients want to know what is next? Obviously 2020 has and is shaping up to be a historical year. However, data from the late 1990’s show a financial crisis is often followed with a steep increase in housing prices.
The U.S., Japan, South Korea, Singapore, and other hot markets are struggling with declining demand. The medium-term trend of the housing market remains gloomy. But a study shows that the next correction will mark the start of a strong housing market recovery.
A research paper published by the University of Granada and Federal Reserve Bank of Chicago read: “During the late 1990’s and up to 2007 several countries experienced sharp increases in house prices. These episodes are usually mentioned among the causes of the recent world’s economic and financial turmoil. The dramatic growth in bank lending during this period has been broadly held responsible for these market dynamics.”
The housing market tends to see an extended surge after a financial crash for two main reasons. One, interest rates remain low for a relatively long period of time. It alleviates pressure from potential buyers and creates more affordability. Second, various forms of stimulus and government support are rolled out to lead economic recovery. Such efforts typically lead to an increased appetite for real estate purchases over time.
Over the next six months, the Federal Reserve does not intend to hold back in stimulating the economy. Fed chair Jerome Powell predicts the unemployment rate in the U.S. will reach 25%, a level unseen since the Great Depression in the 1930s.
The pressure that is being imposed by both economists and the general population for more stimulus will push the Fed to provide the economy with enough liquidity. Following arguably the biggest financial crisis in over a decade, the Fed’s aggressive stance will likely result in high levels of bank lending. That will stimulate the housing market entering 2021, setting it up for a strong
*James Young, “Historical Data Shows Housing Market…”www.forbes.com Forbes, May 24, 2020
Real Estate is Local
While national real estate numbers can provide a “big picture” outlook, real estate is local. A market such as New York or California is going to differ greatly from our local market in Houston.