Signs are pointing to a housing market decline in 2019 and 2020, indicating a recession will officially arrive in mid-2020. Even as we look ahead to the next recession, media outlets are promoting positive economic indicators, citing record-level unemployment and high stock market numbers. But what about housing?

At first glance, the housing market appears to be doing just fine. In California, seven years of precipitously rising prices have pushed home prices above their peak reached during the Millennium Boom. But home prices are just one piece of a complex puzzle — other important housing market factors are still trailing.

California’s housing market recovery

Change from recession bottom Change from pre-recession peak
Home prices +95% +9%
Home sales volume +7% -43%
Construction starts +232% -44%
Homeownership +3% -8%

It turns out, California home pricing is the only factor that has risen beyond its pre-recession peak. This is better than most of the country, as U.S. home prices are still on average 9% below the pre-recession high reached in 2006. Still, California’s 9% home price rise over 13 years isn’t even enough to keep up with inflation.

Other important housing factors have risen from their bottoms hit during the recession and early recovery, while still remaining far below the peaks experienced before the recession began. California’s continued low-to-down home sales volume is a particularly loud signal that the housing recovery never arrived.

Why housing didn’t recover

A study from the Federal Reserve Bank of St. Louis suggests rising student debt and tighter access to lending have both played a part in reducing homebuyer demand throughout the recovery.

But truly, this might not be such a bad thing. After all, the Millennium Boom was a bubble, and thus unsustainable by nature. The fact that lending standards have tightened from the days when three-quarters of all originations were adjustable rate mortgages (ARMs) and no-doc loans were considered acceptable practice is a good thing for a more stable housing market. By not encouraging sales volume to return to the inflated heights of the Millennium Boom, forward-looking regulators have saved the housing market from another disastrous crash.

Therefore, as housing professionals look down the barrel of the next recession, they can find some comfort in the fact that the decline won’t be as severe as during the 2008 recession. Agents and brokers will survive the next recession if they take steps now to boost their incomes, even as sales and prices continue to slow.

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