These days, a number of financial experts are sounding warnings about a potential recession. And there's reason to believe they may be right.
That said, recessions aren't always drastic, and some can be short-lived. And if a recession does hit within the year, it won't necessarily come anywhere close to mimicking the massive recession Americans endured between 2007 and 2009.
But still, it would be wrong to call recession fears unfounded. The Federal Reserve is moving forward with interest rate hikes in an effort to slow inflation. As borrowing gets more expensive, consumer spending is apt to decline. That could result in an economic downturn -- one that leads to higher levels of joblessness and more general uncertainty.
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All of this may have real estate investors and homeowners worried about a potential housing market crash. But property values are unlikely to plunge during a recession for one big reason.
It's all about inventory
Right now, home prices are sky-high, and they've been that way all year, even as mortgage rates have risen sharply since the start of 2022. But the reason soaring home prices have remained sustainable is that housing inventory has lacked in a very big way.
Over the past few months, housing supply has increased modestly. But we're still nowhere close to having enough inventory to satisfy buyer demand. And as long as inventory lags, home prices are unlikely to plummet.
Does this mean that real estate investors and homeowners should simply sit back and see what happens? Not necessarily. Those planning to sell may want to do so sooner rather than later -- before mortgage rates keep climbing and unemployment levels pick up, thereby forcing some buyers out of the market whether they like it or not.
But there's a difference between panicking and being proactive. The former isn't necessary, nor is it helpful. On the other hand, investors looking to unload an income property should consider acting quickly. And existing homeowners looking to downsize have a prime opportunity to command top dollar for their properties, given the current state of the housing market.
In fact, those nearing retirement may want to look at downsizing their homes while buyer demand is still intense. And a good strategy for those who can manage it may be to sell their homes at a high, rent for a year or two to give the housing market time to cool, and then buy smaller homes once property values aren't quite as astronomical.
Granted, rents are also sky-high these days. But in the right market, this strategy could help older workers boost their cash reserves ahead of retirement.
Home values can withstand a blow
It's too soon to predict what impact an upcoming recession might have. But real estate investors and homeowners alike shouldn't stress over a housing market crash. Right now, there's more than enough demand relative to supply to keep home prices from sinking.
