Why a recession may not affect the housing market.

If a recession does hit, how would it affect a housing market that’s already starting to cool? With the scars of 2008 still fresh, it’s understandable that some would worry about another housing implosion. But most real estate professionals don’t expect a possible recession to spell doom for the housing market. Some even think it would hardly affect housing at all.

“People’s incomes get squeezed [in a downturn], but they still need a place to live,” said Aaron Terrazas, Zillow’s director of economic research. “Usually what that means is they’re still in the market if they need one, but their price-point is lower.”

Housing in previous recessions

It’s somewhat counter-intuitive, but recessions don’t necessarily mean bad things for the housing market. In fact, they usually don’t.

ATTOM Data Solutions, a leading real estate data provider, looked at home prices during the five recessions since 1980 and found that only twice—in 1990 and 2008—did home prices come down during the recession, and in 1990 it was by less than a percent. During the other three, prices actually went up.

“Housing is such a basic need that it won’t necessarily do well, but [it will] at least truck along,” said ATTOM’s Daren Blomquist. “It may flatten out a bit, but people still need somewhere to live, so that basic need is going to cause how the housing market—and particularly home prices—to continue to go up.”

ATTOM data also show that rents are even less impacted by a recession. During the housing bust in 2008, the average fair market rent for a three-bedroom property, as calculated by the U.S. Department of Housing and Urban Development, rose at a steady clip even as home prices cratered. Rents likely rose as homeowners who had to go into foreclosure during the crisis added new demand for rental housing.

Why this time won’t be another 2008

For a lot of millennials, the only recession they have specific memories of is 2008. That recession not only caused complete chaos in the housing market, but was directly caused by chaos in the housing market. So it’s natural that a lot of people would equate recessions with a housing collapse, but 2008 was a unique case, and today’s housing market in many ways is the complete inverse of the housing market in the run up to 2008.

Primarily, the shoddy mortgage lending practices that flooded the market in 2004 are not present today. In the years before 2008, mortgage lenders made loans to unqualified buyers, or subprime buyers, without verified income or down payments and pushed those buyers into risky loan products that were destined to fail.

Those loans were bundled in to bonds, known as mortgage-backed securities, and dispersed throughout the entire global financial system. When the subprime loans in the subprime bonds started defaulting en mass, the securities failed, too, leading to a financial collapse on a scale never seen before.

But today, mortgage lending is so strict that some in the industry think lenders over-learned the lessons of 2008. The Dodd-Frank legislation passed during the Obama administration enacted strict standards for what types of loans the government-sponsored mortgage facilitators Fannie Mae and Freddie Mac will buy.

The vast majority of mortgage lenders originate a mortgage and then sell it to Fannie or Freddie, so mortgage lenders confirm to the strict standards set by Dodd-Frank. In short, mortgage lending practices today are air-tight, whereas in 2008 they were as sloppy and risky as they’ve ever been. As a result, subprime mortgage bond issuance is a tiny fraction of it was prior to the crisis.

One of the factors in the 2008 collapse that isn’t talked about as much is the oversupply of housing. Going into the 21st century, regional home builders consolidated to form large national companies, and they were churning out houses in volumes that dwarf the pace of building today.

Real estate speculators often purchased this oversupply, and when the crisis hit, they just let those houses go into default because they hadn’t put any money down on it anyway. This led to massive housing supply for sale during the collapse, which pushed prices into free fall. But today, housing supply today is incredibly tight.

“A correction can only go so far because of [the housing supply] dynamic,” said Eric Abramovich, co-founder of home-flipping lender Roc Capital. “I think there’s a floor [today], as opposed to 2008 when there was no floor.”

While the specific mechanics of the 2008 collapse won’t play out if there’s another recession, economists have speculated whether the psychological scars of the crisis would lead to unwarranted panic in the housing market if the economy starts turning sour.

“The psychological component I think is absolutely dark horse in what might happen in the next downturn,” McLaughlin said. “The more that we can provide data out there to help such households make more rational decisions in the housing market the better.”

According to the recent Housing and Mortgage Market Review report from Arch Mortgage Insurance, the housing declines of the Great Recession aren’t typical—even in a recession, so expecting an impact as big as last time isn’t reasonable.

“What we found is that the next recession is likely to be far less severe on the housing market than the last one,” Archi MI’s economists wrote in the report. “It’s not that this time is different; it’s that last time was really different from historic norms.”

Most likely, home price declines will be small, if any.

“A large decline in national home prices is unlikely in the next recession,” they wrote. “A persistent housing shortage should help cushion home price declines.”

Overall, most economists and housing analysits predict that there may be small decreases in home values, but nothing compared to the Great Recession.