Next U.S. Recession Will Likely Begin in 2020, Says Economists

Likely triggers are trade policies, stock market corrections or geopolitical crisis

According to a panel of housing experts and economists surveyed recently by Zillow, the next U.S. recession will likely begin in 2020.

The Zillow Home Price Expectations Survey, sponsored by Zillow and conducted quarterly by Pulsenomics LLC, asks more than 100 real estate economists and experts for their predictions about the U.S. housing market. The Q2 survey also asked the panelists for their expectations about the next recession, and how home-buying demand will change through the end of next year.

Few panelists expect a recession to start by the end of this year. Half of the experts surveyed said the next recession will start in 2020, with nearly one in five (19%) identifying the third quarter as the likely beginning. Another 35% of experts think the current expansion will end in 2021.

The most likely cause for the next recession is trade policy, followed by a stock market correction and geopolitical crisis. Only a few experts think that a housing slowdown will be a significant factor in causing the next recession, with 12 respondents naming it among the three most likely triggers.

"Housing slowdowns have been a major component, if not catalyst, for economic recessions in the past, but that won't be the case the next time around, primarily because housing will have worked out its kinks ahead of time," said Skylar Olsen, Zillow director of economic research. "Housing markets across the country are already heading into a potential correction a solid year before the overall economy is expected to experience the same. The current housing slowdown is in some ways a return to balance that will help increase the resiliency of the housing market when the next recession does arrive."

But even if a housing slowdown isn't the cause of the recession, the housing market will likely feel the impact. Just over half of the panelists (51%) expect home buying demand will be somewhat or significantly lower in 2020 compared with 2019, while only 17% say it will increase. Homes will likely stay on the market longer and bidding wars will become less common. - in 2011, it took just over 17 weeks to sell a home, compared with just under 11 weeks to close on a sale in 2018. The final sale price also was further below the listed price throughout the Great Recession, hovering near 91% of the original price in early 2011. Now, homes sell for about 98% of the asking price.

Still, a recession would not result in a sudden plunge in home values. Even in the Great Recession, when housing played a much larger role than is expected for the next recession, national home values fell on an annual basis for 54 months before reaching their lowest point in 2012, and never fell by more than 1% month over month.

Home value appreciation has slowed over the past several months, from 8.1% annual growth in December 2018 to 5.2% in June 2019 - the slowest annual pace since 2015. The expected decline in demand in 2020 is likely to extend the housing slowdown going forward.

Home prices are predicted to rise 4.1% in 2019, but experts have lowered their forecasts for home price appreciation for the next couple years. They predict home prices will rise 2.8% in 2020, down from their Q2 2018 prediction of 2.9% growth. Similarly, their 2021 forecasts have slid from 2.6% growth to 2.5% appreciation.

"More than any other factor with the potential to impact home-buying demand through 2020, mortgage rates are viewed by our expert panel to be most significant," said Pulsenomics Founder Terry Loebs. Although 30-year mortgages are near 18-month lows and available now at rates below 4%, the near-term outlook for home prices has actually weakened a bit from the previous survey in February. Loebs explained, "Together, these data suggest that most experts believe the recent rate move is a temporary dip, and that home-buying demand through next year will be dampened by other, more persistent factors that affect affordability, such as constrained inventory and the growth of house prices relative to wages."