Job layoffs and decreased consumer spending are hallmarks of an economic downturn, but what happens to the housing market during a recession? Should you be wary of buying or holding real estate investments? In this article, we’ll look at how the housing market has fared in past recessions, how it might be affected in 2025, and the steps you should take today to protect your financial future!
Summary:
A recession in 2025 is seeming more and more likely. According to many economists, the probability of one stands at roughly 35%-40%, with JPMorgan increasing recession odds to 60%!
Unemployment has been steadily rising since 2023, and the stock market is on pace for its worst quarter since September 2022—largely fueled by tariff and inflation fears. What’s more, the Federal Reserve Bank of Atlanta has recently predicted negative GDP (gross domestic product) growth in 2025. These are just a few of several indicators suggesting that a recession could be around the corner.
During a recession, job layoffs and decreased economic activity can lead to higher housing supply and lower demand. Here are several areas that could be affected:
During tough economic times, where consumer spending is lower and unemployment is high, interest rates can temporarily see a drop. This is usually brought about by the Federal Reserve lowering their federal funds rate in an effort to prompt Americans to spend and borrow, stimulating the economy. This tends to influence mortgage rates indirectly, as a lower federal funds rate means lower borrowing costs for mortgage lenders.
While many of us remember the Great Recession as a real estate-caused event, real estate is usually one of the safest investments to hold during a recession. During the other four recessions since 1980, home prices declined by an average of just 2.7% (from the month before each recession to its final month).
The Shiller Real Home Price Index measures inflation-adjusted U.S. home prices over time.
Source: https://www.redfin.com/news/next-recession-housing-market/
Start investing in cash-flowing, recession-resistant real estate!
Although not terribly obvious, rents rarely fall by a significant amount during recessions. This is because slower economic periods often lead people to downsize or rent, especially in median-priced (more affordable) rental housing.
Source: https://fred.stlouisfed.org/series/CUUR0000SEHA#
As a real estate investor, this increased rental demand puts you in a great position both in and out of a recession, as your rentals may be relatively unaffected.
Housing inventory tends to jump during recessions as many people are either forced to sell or are voluntarily downsizing so they can save money. With more properties on the market yet significantly less competition, real estate investors can often score better deals.
Monthly supply of new houses in the United States.
Source: https://fred.stlouisfed.org/series/MSACSR
Inflation affects almost all aspects of real estate, making home prices, rents, and repairs more expensive. While inflation and recessions don’t always arrive in tandem, 2025’s economic environment is more fueled for inflation than most due to new tariffs, fluctuating energy prices, 2020’s massive quantitative easing (money printing), and previously low interest rates.
Don’t want to be blindsided by a potential recession? Weather any financial fallout with these four simple but savvy steps:
If you happen to lose your job during a recession, the last thing you want is to have your entire wealth tied to illiquid investments, leaving you with no way to pay the bills. Cash not only keeps you afloat when you’re out of work but also allows you to invest at a discount once asset prices fall.
Nothing exposes your portfolio risk like a recession. Volatile assets like cryptocurrency, commodities, and individual stocks are especially prone to sinking during recessions, so if you can’t stomach major price dips, consider a de-risked investment strategy. Diversify your investments across different asset classes and, if you can, pivot to “safer” assets—like real estate!
Assets like real estate tend to remain relatively stable in recessions and economic downturns. Turnkey real estate investing allows you to buy a home that is newly built or recently renovated, keeping your maintenance costs lower so you have an even bigger cash flow moat to insulate you and the asset during tough times.
Invest in recession-resistant real estate with Rent to Retirement!
Recessions aren’t the time to be taking lavish vacations or upgrading to a new sports car, as a sudden layoff or rising inflation could put immense pressure on your finances. Instead, ensure you and your family have enough to be safe and comfortable during market swings. You can achieve this by cutting unnecessary spending and holding on to assets that maintain their value!
If you fear that another recession could cause home prices to plummet like they did in 2008, rest assured that this is an unlikely outcome. The Great Recession was an anomaly—the collapse of a housing bubble created through high-risk lending practices and lax borrowing requirements.
The Dodd–Frank Wall Street Reform and Consumer Protection Act has since made borrowing significantly more stringent, meaning those who are buying houses today have much better credit scores and are more able to afford them.
Source: https://www.experian.com/blogs/ask-experian/how-credit-scores-for-mortgage-borrowers-changed/
For all but the real estate-caused 2008 recession, the housing market has fared well in recessions. These times can bring turbulence to housing inventory, mortgage rates, and buyer demand, but real estate remains a strong, recession-resistant asset when bought correctly!
Turnkey rentals, especially, can give investors peace of mind during stressful economic times. These newly-built or renovated properties have very few maintenance needs, providing a larger cash flow buffer at a time when you might need it. Turnkey properties also come with tenants and property management already in place, giving you steady rental income without the added work of finding tenants, communicating with residents, or collecting rent!
During recessions, the Federal Reserve often lowers the federal funds rate, and in turn, banks lower their mortgage rates. This makes debt more affordable for potential homebuyers, and the increased spending and borrowing can help jumpstart a stagnant economy.
House prices tend to decline during a recession, but not as drastically as you might think. Historically, real estate is more stable than many other markets, and home prices even increased during the Dot-Com recession in 2001.
House prices dropped 16.7% during the 2008 recession, but it’s worth noting that this was a real estate-caused event. During the four previous recessions since 1980, home prices declined by just 2.7% on average.