How a Mild Recession Could Actually Help the Housing Market

In June, the median sale price for the typical starter home reached $243,000—an all-time high. And in August, Goldman Sachs' Housing Affordability Index hit a record low as 7% mortgage rates kept prospective sellers on the sidelines of an already undersupplied for-sale housing market. To force a slowdown, the Federal Reserve has targeted the high-cost housing market with 11 interest rate hikes over the last 18 months, intended to restore balance between supply and demand.

While the prospect of a recession has made homebuyers nervous over recent months, a cooldown may actually be good news for the housing market, Insider reports. In a mild recession scenario, central bankers would likely start moving in reverse by cutting rates, which could lead to lower mortgage rates and, eventually, more affordable homes. And, compared with 2008, today's homeowners are more financially resilient.

Jacob Channel, LendingTree's senior economist, told Insider in a recent interview that the supply and demand dynamics of the current market are distorted, but it's possible demand surges if mortgage rates dropped to about 5%.

"On one hand, more demand puts upward pressure on home prices," he said. "But housing supply has decreased significantly, and that's also because it's become more costly to build and harder to get materials. But now supply chains are better and raw materials are decreasing in price. So we have two possible forces — demand could come back as rates decline, and supply could improve as building comes back."

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