The word “Recession” doesn’t elicit feelings of prosperity. However, regarding mortgage rates and home prices – recessions historically benefit both.
Fed’s Actions During Recession Help Rates
During recessions, the Fed tends to take actions that lower interest rates in general. While the Fed doesn’t control mortgage rates, they still tend to fall relative to Fed recessionary actions. The Fed combats recession by reviving economic activity. How so? They drop the Fed Funds rate to help spark the economy.
Money’s Flight To Quality During Recession
Another factor helping mortgage rates during recession is how big money moves. Recessions tend to drive money out of the stock market and into the safer bond market. Mortgage rates are tied to bonds and the increase in demand and price for bonds drive mortgage rates downward.
Cheap Mortgage Money Increases Housing Demand
As mortgage rates fall during a recession, homebuyer’s blossom as the cost of buying a home falls due to lower rates. The increase in demand also serves to stabilize and elevate home values.