What a Possible Recession Could Mean for the Housing Market

The recent rollout of President Donald Trump’s aggressive new tariffs has reignited concerns that a full-scale trade war could trigger a U.S. recession—bringing with it major implications for the housing market.

Since Trump’s April 2 announcement of "reciprocal" tariffs targeting key trading partners, the S&P 500 has slid for four consecutive sessions, dropping more than 12% and erasing over $10 trillion in market value.

While the administration insists that these tariffs will ultimately strengthen the economy, many financial leaders are growing increasingly uneasy. JPMorgan Chase CEO Jamie Dimon, once a tariff supporter, now warns a recession is “a likely outcome” as Americans pull back on spending amid shrinking investment portfolios. J.P. Morgan and Moody’s Analytics have both raised their global recession forecasts to 60%. Even billionaire investor Bill Ackman, typically aligned with Trump, likened the economic risk to a “self-induced nuclear winter.”

What Is a Recession, and Why Does It Matter for Real Estate?

According to the National Bureau of Economic Research, a recession is defined as a widespread, sustained economic decline lasting more than a few months. It typically brings job losses, reduced consumer spending, and rising unemployment.

A recession doesn't always follow a stock market crash, but enough economic stress can certainly tip the scales. For the housing market, even the fear of a downturn can cool demand as buyers grow cautious about taking on new debt during uncertain times.

How a Recession Could Impact Home Sales and Prices

Recessions generally lead to decreased homebuying activity, putting downward pressure on prices. As demand falls, homes sit on the market longer and inventory builds up. However, we’re already seeing sluggish activity—2024 home sales are near 30-year lows, and early indicators for 2025 show only modest improvement.

“There isn’t much further to fall,” says Realtor.com® economist Hannah Jones, noting that the already-soft market may cushion the impact of a downturn.

Still, a recession could deepen regional divides. In areas like the South and West, where home inventory is nearing pre-pandemic levels, prices may fall faster. In contrast, the Northeast and Midwest remain under-supplied, which could help stabilize prices longer—even if demand pulls back.

The good news? Most homeowners are in a relatively strong position. Over half hold mortgages with rates below 4%, making their monthly payments manageable even during economic stress. This should limit widespread foreclosures, a key factor in housing crashes of the past.

What About New Construction?

Homebuilders are already facing higher costs due to tariffs. A recession would likely stall new projects further, worsening the already-tight housing supply over the long run.

Homeowner Equity Provides a Safety Net

The housing market has seen strong price appreciation over the past few years, building up homeowner equity. Even if prices dropped 10–20%, most owners would still hold significant equity, minimizing the risk of widespread financial damage.

Could a Recession Lower Mortgage Rates?

Yes. Mortgage rates typically fall in a recession, as investors flee to the safety of bonds. This drives down Treasury yields, which mortgage rates tend to follow. We saw a preview of this recently, with a sharp dip in bond yields triggering the year’s lowest mortgage rates—before rebounding days later.

A full-blown recession would also likely prompt the Federal Reserve to lower interest rates, making borrowing cheaper. But while lower mortgage rates can be a silver lining, they may not be enough to offset job insecurity for many would-be buyers.

How Buyers Can Prepare

If you’re planning to buy a home, now is the time to assess your financial resilience. Don’t stretch your budget to its limit—leave room for emergencies and unexpected changes in income.

“Make sure your housing payment is something you can afford even in a downturn,” says Jones. Renting may be the smarter move in some markets, especially where it’s still cheaper than buying.

And don’t underestimate the importance of savings. Realtor.com Chief Economist Danielle Hale advises having an emergency fund that covers several months of expenses.

“It’s always a good idea—but especially now,” she says. “Uncertainty is high.”

Chaffee County's real estate market is starting strong in 2025. If you're curious about your home's value or the available properties in our region, feel free to contact Shawn@FirstColorado.com.