Q: There is an entire group of people today who’ve never gone through a major recession. How will home prices be affected if we do have a recession like the pullback of 1974?
A: The recession of 1974, caused by high inflation and an oil crisis, took the wind out of the housing market. Homebuilding dropped 33 percent, according to Time magazine’s Dec. 9, 1974 cover story. The Federal Reserve clamped down on the money supply. Mortgages became harder to afford.
But if we were to have a repeat of 1974, much more would happen because recessions cause widespread economic damage.
Exactly what that meant for house prices is hard to know because data from that decade is sketchy.
We can say, however, what the local fallout was from two milder, more recent recessions: 1990-91 and 2001-2003. The rate of appreciation fell, but house prices in general didn’t. Here are the numbers:
After rising 28.9 percent in 1990, King County single-family home prices basically flat-lined for the next three years, rising just 1.2 percent in 1991, 0.1 percent in 1992 and 1.7 percent in 1993. Then they began rebounding, culminating with 10.1 percent appreciation in 1999.
It would appear that whenever the answer to a question is a bit too difficult for Ms. Rhodes to swallow, she decides to answer a completely different question that wasn’t even asked. In this case, the question she appeared to be answering was actually “what is a recession, and how would Seattle be affected in a very mild one?”
Of course, the answer to that question is both reassuring and ultimately useless.
(Elizabeth Rhodes, Seattle Times, 04.14.2007)