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Why the Next Recession Is Likely to Happen in 2020, and What It Will Mean for Housing

Zillow Research
  • Exactly half of a panel of more than 100 real estate and economic experts said they expect the next recession to begin in 2020, with another third (35%) predicting the next recession to begin in 2021.
  • Trade policy, a geopolitical crisis and/or a stock market correction were the factors identified by panelists as most likely to trigger the next recession. A housing slowdown is unlikely to cause the next recession, according to the panel, but home buying demand is expected to fall next year.

The longest uninterrupted economic expansion in U.S. history will probably end with a recession in 2020, according to a panel of more than 100 experts.[1] Trade policy, a stock market correction and a geopolitical crisis were cited as the most likely triggers for the next economic reversal.

The current expansion recently broke the previous record-long streak of 120 months, set between 1991 and 2001. If the currently hot U.S. economy does slide into a recession next year, it will be doing so amidst softening home buying demand that is expected to be lower in a year than it is now.

The Q2 2019 Zillow Home Price Expectations survey, sponsored by Zillow and conducted quarterly by Pulsenomics, asked more than 100 real estate experts, economists and strategists for their views on the timing of the next recession and the evolution of home buying demand this year and next. Among those with an opinion, exactly half (50%) said they expected the next recession to begin at some point in 2020, with another 35% saying they expected the current expansion to end in 2021.

Almost one in five panelists (19%) said the next recession would begin in Q3 2020, the most popular quarterly choice, and 9% said the next recession was most likely in Q3 or Q4 of this year. Just 1% of those with an opinion said they expected the next recession would not begin until 2023, with another 1% saying it would happen after 2023.

The expected timing of the next recession was largely in line with expectations this panel expressed around the same time last year, when 48% of panelists said they expected the next recession to begin in 2020.

Housing Won't Cause the Next Recession, But Will Be Impacted

Panelists were asked to choose and rank up to three economic and/or political factors likely to trigger the next recession, from a list of 10. Trade policy, a geopolitical crisis and a stock market correction were the most commonly chosen factors, respectively. A housing slowdown was among the factors rated as least likely to cause the next recession, chosen by just one in eight (12.6%) panelists that offered an opinion.

But while panelists largely indicated a housing slowdown was unlikely to cause the next recession, the housing market will surely be affected by more sluggish economic conditions. A small majority (51%) of those experts with an opinion said they expect home buying demand in 2020 – when they say a recession is most likely to occur – to be somewhat or significantly lower than in 2019. About a third (32%) said they expected home buying demand to be about the same in 2020 as in 2019.

More immediately, almost three quarters of respondents (73%) said they expected home buying demand this year to be about the same or lower than last year. Home sales have been sluggish to start 2019 compared to the beginning of 2018, despite conditions that are more favorable for buyers now than they have been in quite some time.

Weakening Demand, Slowing Home Value Growth

Put together, signs of already fading demand and the possibility of an impending recession are also very likely to contribute to further slowdowns in overall U.S. home value appreciation going forward. Currently (April 2019), U.S. median home values are growing at a 6.1 percent annual pace – strong by historic standards, but well below annual appreciation rates of 8.1 percent recorded as recently as December. Annual home value growth has slowed in each of the past four months compared to the month prior, and panelists said they expect this slowdown to continue.

Panelists were asked for their opinions on the pace of home value growth over the next five years. On average, panelists said they expect annual growth at the end of 2019 to be 4.1 percent, slowing further to 2.8 percent in 2020 and 2.5 percent in 2021 before picking up somewhat in 2022 and 2023 (to 3 percent and 3.4 percent, respectively).

 

[1] Of 112 panelists who participated in this edition of the survey, 98 responded to this question. Excluding indeterminate responses, a plurality of one-half (50%) of the experts expect the next recession to begin sometime in 2020.

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