A recession won’t help millennials with buying a home

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.

Also keep in mind historic precedent: As far as home prices dropping in the wake of recession, 2008 is the exception to the rule. During two mild recessions in the early 1980s, for example, home prices actually increased, just as they did in the early 2000s after the dot-com bust. Home prices are less responsive to recessions because housing is an absolute need, and because buyers tend to come from better financial situations that aren’t as damaged by a recession.

It’s also worth noting that a recession is not something to be taken lightly. Because millennials struggled in the aftermath of the last recession and have record levels of student debt, the next recession could have dire consequences for many in the generation. But if you’re in a position where you have savings, family assistance, or a job that’s likely to remain stable through a recession, there are some potential scenarios in which buying a home during a recession might make sense. Here are four of them.

What if I’ve been saving for years and just want a chance to buy something (anything)?

You might actually have a better shot at buying during a recession! The down payment is often people’s biggest obstacle to homeownership, so having money saved up will always put you ahead of other buyers, particularly those who came of age after the last financial crisis and weren’t able to build up savings (aka, millennials).

Furthermore, any uptick in unemployment might force other prospective homebuyers to dip into their savings, effectively taking them out of the homebuying market until they find a new job. This could mean fewer bidding wars and less upward pressure on prices.

What if I have a stable, fairly recession-proof job that I’ll likely hold on to?

Steady income goes a long way toward determining whether you qualifying for a mortgage, which is much harder today than it was before 2008. This can help you stay in the market when the suddenly underemployed bow out.

A recession would put a dent in demand for housing, which has been high as the economy has thrived. The problem is that housing supply still remains low. It’s possible that a prolonged recession could prompt more homeowners to sell or downgrade to a smaller house to tap the equity in their home, putting some more homes on the market. But the real effect of a recession would be a moderate impact on housing demand, which alone will only go so far toward pushing home prices down.

What if I’m uncertain about my future employment, and don’t have much savings—but have help from family on the down payment?

Any time you’re uncertain about your future employment, it’s probably best to hold off on making a large, life-altering purchase like a house, even if your parents can help with a down payment. If they/you can buy a house outright, then yeah, go nuts on your piece of the American dream.

But if you’ve only got a down payment in the bank, you’re still on the hook for the monthly mortgage payment. (And if your income looks shaky to a creditor, you may not qualify for a mortgage anyway.) My advice is to hold off, and bank that down payment to accrue interest and buy into the home market once your regular income is more assured.

How do my chances look if I’d like to buy in expensive coastal markets, where prices are already sky-high?

East Coast markets like New York City, Philadelphia, and Washington, D.C., are on fairly stable footing. New York and Washington are unlikely to see discernible price drops. Philadelphia is a little softer, but don’t hold out for bargain prices, like in 2008.

The West Coast is a bit different. Supply spikes in cities all over California, Oregon, Washington, and Colorado over the last year have been signaling that home prices are too high, and possibly due for a correction. In the most expensive (looking at you, Bay Area), prices have already slightly dipped.

Which is to say that if recession comes knocking, it could potentially generate some attractive buying opportunities in the West Coast markets that are already primed for a housing correction.

Are you in a different situation than the ones above? Tell me in the comments and I’ll help you decide if a recession will be the time to jump into the home buying market.