The 2008 financial crisis brought the global economy to its knees and sent American home prices into freefall. For anyone who managed to hang on to their job, savings, and credit score, the aftermath of the crisis was a prime opportunity to buy a house at a bargain price.
The Great Recession is the only economic downturn millennials have lived through as adults, so, naturally, they might think that the next recession—which more and more economists believe will hit by 2021—will present a chance for many millennials to finally join the ranks of homeownership.
It doesn’t bring me joy to report that this is unlikely to be the case.
The last recession was an anomaly in more ways than one, and its effect on the housing market is the biggest outlier relative to other recessions. The 2008 recession didn’t cause the housing market to go into freefall. The housing market going into freefall caused the recession.
In the years leading up to that collapse, mortgage lenders were issuing mortgages that were destined to fail. Those mortgages were bundled into bonds and distributed across the global financial system. When people started defaulting on those mortgages, the financial system collapsed, and millions of homes went into foreclosure. Prices dropped.
In contrast, the next recession—should it hit—will signal the natural end of a long economic expansion since 2008. Another forcing mechanism is the trade war between the United States and China, as new tariffs lead businesses to scale back on investing and hiring, causing the economy to slow down.
In other words, it would be a fairly standard recession that has nothing to do with mortgages or the housing market, and its severity is not expected to rival the one in 2008. An upcoming recession would also encounter a housing market that’s almost the inverse of what it was in 2008: tight mortgage credit instead of loose mortgage credit, housing supply shortage instead of a housing surplus.