How Much Do House Prices Fall, or Crash, in a Recession in America?

50 years of data analyzed



  1. In the worst-case scenario, house prices in the U.S. may crash about 14 percent, in real terms, in a recession.

  2. The Impact of a recession on house prices in the U.S., in real terms, can confidently be expected to be -4.7 percent ± 8.9 percent.

  3. The report includes value at risk (VaR) analysis, and different scenarios and their impact on house prices for definitive answers.


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Every new buyer and homeowner has this concern. . . how much can the house prices crash in a recession? With the memories of the 2008 financial crisis still vivid in our minds, combined with the pessimism that 2020 carried with the pandemic, people have naturally developed 'anxiousness' regarding all aspects of their financial health.

Alternatively, investors with real estate holdings as part of their portfolio also have this concern. If the economy's recessionary condition persists, or if there is another lagging-conditional recession in the next 4-6 years (which, of course, is likely), how much can residential property prices crash? An accurate assessment can be a critical aid in devising hedging strategies and formulating remedial actions.

Many 'gurus' give predictions regarding what can happen; however, any 'assessment' that is not based on data and modeling is . . . well . . . worthless. This report utilizes 4 decades of data to understand this issue with precision for definitive answers.

All-Transactions House Price Index and Median Sales Price of Houses Sold, from the US housing agency and the US census bureau, have been used in this report for an in-depth examination. All data and calculations are available at the end of the report.

Each of the above-mentioned indicators is given 50 percent weight in the analysis to evaluate the impact of recessions on house/real estate prices. The final derived value is adjusted for the long-term inflation rate to derive the real value, i.e., the impact of the recession, in real terms.

So, what does the data reveal?

Examination of the last 6 recessions reveals that, on average, the recession impacts U.S. house prices by -4.7 percent (adjusted for the inflation rate in the recession period), and the nominal price of homes increased by 0.69 percent. Furthermore, other than the 2020 distress periods, housing prices were negatively impacted, in real terms, in all other observed recessionary periods in the data analyzed (1980- 2020). This simply means that other than the 2020 recession, all previous recessions from 1980 onwards negatively impacted the prices of residential properties in the U.S.

What about future recessions? How much can we expect house prices to crash/decline?

Confidence interval for the mean impact of recessions has been calculated to examine how future recessions may impact house prices:

Mean confidence interval: [-13.51 percent, 4.181].alternatively: -4.7 percent ± 8.9 percent Since the population's σ is not known the formula uses the T distribution with n-1 degrees of freedom:

X ± T(1-α/2)(df)S/√n.

-0.046646408 ± T(1-0.020/2)(5)⋅0.064390345/√6

If you would calculate the confidence interval over an infinite number of samples with a sample size of 6, 98 percent of the calculated confidence intervals will contain the mean's true value.

Simplistically, this means that the worst-case scenario, as per the data, is an -13.51% real decline, or an -5.3% nominal decline in house prices in a recession; the best-case scenario is a 4.18% real appreciation or a 6.1% nominal appreciation; as per the data of the last 6 recessionary periods.

We can state with 98% confidence that the actual impact of the next recession, on U.S. house prices, should be -13.51% to 4.18% in real terms, adjusted for the long-term inflation rate, or -5.3% to 6.1% in nominal terms.

The real figure is more important to remember in this scenario; this, simplistically, means that, in a recession, for every $100,000 in equity in a house, as per the data, a homeowner or investor is at risk of losing a nominal value of $13,510, in the worse case.

So, how much money am I risking by buying a new home or holding a property portfolio? How much can the price of a house decline after you buy it, especially in a recession?

A value at risk (VaR) analysis that measures how an asset's value is likely to decrease in a specific period is implemented for definitive answers. Using a 95 percent confidence interval, the VaR is calculated as: z = (x-µ)/σ

X= (-1.65 × 6.44) + 100 = 89.4.

Simplistically, this means that for every $100,000 in equity in a house, we can state with 95 percent confidence, as per our assessment of past 6 recessionary periods, that the losses should not exceed $10,630, or 10.63%; The upper limit of losses, in the worst-case scenario, should be around 14% (as explained in the previous paragraph). We can thus safely say, with confidence, that in a recession, the worst-case an investor, homeowner, or buyer, should prepare for is losses of under 15%, or $15,000 per every $100,000.

It should be noted, nonetheless, that these are the most likely values, and of course, there is always a possibility of a one-off idiosyncratic event being much worse.

It is safe to say, however, that losses greater than 15 percent, as per the analysis of the previous 6 recessions, are unlikely. This simply means that while an abnormal event crashing house prices more than 15 percent is of course plausible, most likely, a recession in the worst-case may lower home prices by a maximum of 15 percent in real terms.

We cannot, and should not, make decisions based on 'anomalous happenings,' as there are infinite strange, aberrant events that can happen for better or for worse. A hedging or risk-mitigating strategy that equips an investor or homeowner with an appropriate response to handle a worst-case scenario of -15 to -20 percent decline in property prices should suffice.

How does a recession impact homeowners' wealth? Does a recession impact homeowners' wealth in the US?

The typical age of a first-time homeowner is 34 year (Link), assuming a typical homeownership period of about 50 years (non-investment residential property), the analysis reveals that without a recession, a long-term growth rate stands at 5.36% (data sheet attached below); recessionary periods (an average of mild and severe recessions) can bring the long term growth rate down to 4.74%.

This means that recessions can substantially impact the equity value in the long run (due to compounding effect). The worst-case possible is 6 recessions per 50-year period, with an average decline of 13.5% per recession: the reduction in equity value in this worst-case is an enormous 75%, compared to no recessionary impact (see data sheet attached below).

The base-case, as per the analyzed nominal decline or the growth rate/appreciation of property prices, is an average of -4.7% decline per recessionary period; with 6 recessionary periods per 50 years, this amounts to a decline of 50.5% compared to no recessionary impact.

Combining the worst-case and the base-case gives us an overall long-term decline figure of about 62.7% (compared to no recessionary impact), and a long-term growth rate, all scenarios considered, of 4.23% (worst-case, base-case, best-case), a yearly yield in real terms of 1.0%. The 4.23% nominal returns p.a. is a realistic long-term figure that an investor or homeowner should expect.

In summary, each recessionary period, on average, can devalue a property by -4.7% in real terms, and this means about -$4,700 decline per 100,000. In nominal terms, the decline, in the worst-case, can be around -5.4%; this means a -$5,400 reduction in value per $100,000. The worst-case real decline per recession period is about $13,500 per $100,000 in real estate value.

Realistically, a homeowner can expect a real decline of about -5 percent per recessionary period.

The mean confidence interval of the impact of a recession, with a 98 percent confidence level, in terms of real value, is -4.7% ± 8.9%; the same nominal figure is 0.69% ± 6.1%. This essentially means that as per the examination of past recessions, the decline in house prices, 98 percent of the time, should be -4.7% ± 8.9% in real terms and -0.69 ± 6.1% in nominal terms. This gives us a range, in real terms, per $100,000 of -$4,700 ± $8,800. Of course, the negative end of the range is more critical for devising a risk mitigation strategy.

Data and Computations: