Will home prices drop if there's a recession?

Home prices don't always go down in a recession, but they can.

During the brief recession in 2020, median home prices fell by almost $12,000, though they quickly reversed course and ended 2021 almost $100,000 higher.

More analysts are predicting that we'll end up in a recession this year as a result of President Donald Trump's trade war. If that happens, will home prices drop?

Home prices may drop in a recession — but don't expect huge dips

Home prices are expected to increase moderately throughout 2025. While a recession could lead to a small decline in prices, a full-blown housing market crash is less likely.

"For home prices to crash, you'd have to have a surge of supply," says Selma Hepp, the chief economist at real estate data firm Cotality (formerly CoreLogic). "And I don't see that happening."

Home prices are driven by supply and demand. Homebuying demand typically goes down in a recession as people are laid off and household savings dwindle.

Supply can also increase during a recession if homeowners default on their mortgages and their homes are put up for sale as part of the foreclosure process.

High supply + low demand = lower prices.

But right now, homeowners are in a good spot to weather a recession. Hepp says that current owners are holding onto historically low mortgage rates and a lot of home equity. Plus, mortgages are much harder to qualify for now than they were in the lead-up to the housing market crash in 2008, so we're unlikely to see a surge of subprime borrowers lose their homes.

That's why Hepp thinks that if home prices drop, it won't be by more than 5%.

In some places, home prices are already down

Home price trends are highly dependent on where in the U.S. you're located. In New York, home prices are up 6% year over year, according to Zillow. But in Florida, they're down 2.5%.

"In markets that have had a lot of inventory increases, especially in Florida and Texas, you are already seeing home prices decline," Hepp says. "So they're already weak and if you add on top of that a recession, you could see more weakness."

Should you buy a house during a recession?

If home prices drop in a recession, is it a good idea to take advantage of that?

Start from solid financial footing

It could be, but it depends on your financial situation, says Bill Moore, founder and wealth advisor at Stratview Wealth Management.

Moore says that hopeful homebuyers should think about "their goals, their financial situation, and what they're expecting to happen to them as far as security of their job. Are they properly positioned for this?"

This includes having an emergency fund with about six months of expenses set aside, he says. That way, you can still make your mortgage payments for a little while if you lose your job.

Some buyers may be more vulnerable in a potential recession than others, and should plan accordingly. Trump's tariffs are already hitting certain industries hard. If you think you're likely to experience a layoff soon, you should hold off on buying a home, Moore says.

"You're not going to take on any additional debt, any additional expenses in the situation where you may very well or you could possibly lose your job, have a demotion, a reduction in pay, whatever the situation," he says.

Be prepared for the costs of buying and owning a home

Buying a house also comes with a lot of out-of-pocket expenses, including your down payment and closing costs, and it's important that you have enough cash to cover these things without dipping into your emergency savings.

Don't forget to factor in the money you'll need to cover your move as well, plus extra in case something needs to be repaired shortly after you move in.

One potential silver lining is that mortgage rates often go down in a recession, so your monthly housing costs could be a bit more manageable.

Make sure it's a good investment

A drop in home prices can seem great when you're a buyer. But once you own the home, you're the one losing that value.

If a recession causes home prices to generally go down in your area, that's not necessarily a concerning sign. As long as you plan to stay in the home for a few years, you should eventually get back that lost value as the economy recovers.

But if a home is priced lower because it has other issues (like it's in need of substantial repairs), that makes it a risky investment.

An Old National Mortgage can help you get started on your homebuying journey.

This article was written by Molly Grace from Business Insider and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.