How a Recession Might Impact Mortgage Rates and Home Prices

Economic uncertainty seems to be the only certainty these days. Inflation might be cooling, but rising tariffs, stock market dips, and global conflict are keeping everyone on edge. With mortgage rates trending up and down and sideways, homebuyers are asking me: Will housing become more affordable in a recession?

After more than 20 years in real estate, I’ve seen my share of market fluctuations, from boom times to full-blown crashes, like 2008. The truth is there’s always an opportunity for certain homebuyers, even in a downturn. The market doesn’t stop during a recession. It just shifts. If you’re financially ready, that shift can actually work in your favor.

Let’s examine what a recession really means for mortgage rates, whether home prices will fall and when it’s a good time to buy a home. 

Recession risks are real 

There are plenty of recession warning signs right now. Layoffs are picking up, GDP is slowing and consumer confidence has dipped. Paychecks aren’t going as far, and retirement accounts are taking hits. 

While less disposable income and tighter budgets point to a general slowdown in the economy, technically, we’re not in a recession yet. It would take two consecutive quarters of negative GDP growth to hit that definition. But for a lot of folks, it already feels like one. 

Even if the inflation rate isn’t going up, the cost of everyday goods and services is still high, and budgets are getting hammered. When folks feel the squeeze every time they swipe a card at the grocery store, it shapes how they think about making huge purchases like a home.

Interest rate cuts aren’t imminent 

Borrowing costs have been expensive for the last several years, making households and businesses wary about taking out loans. The Federal Reserve will probably cut interest rates again later this year, eventually making financing cheaper. 

But those cuts likely won’t come until summer. The Fed’s a bit stuck right now. The economy’s losing steam and inflation is cooling, but not fast enough. The central bank is being cautious about shifting policy, especially with tariffs driving prices back up.

Though lower interest rates will eventually impact the housing market, the Fed doesn’t directly control mortgage rates. Mortgage rates move based on many factors, such as the bond market and investor expectations. Even when the Fed starts cutting rates again, don’t expect mortgage rates to drop like crazy. Many of those expected cuts are already priced into the market. 

Mortgage rates won’t drop significantly 

Mortgage rates often fall during an economic depression, as we saw recently in 2020 and earlier in 2008. Lower rates help boost the economy, and the Fed knows that.

But this time around, things are messier. There’s volatility everywhere. Even though rates could drop, they might also shoot back up with any good economic news. Like many experts in the real estate industry, I think average rates for a 30-year fixed mortgage will hover between 6.5% to 7.25% for most of 2025, with weekly jumps and dips in that range. 

If you’re holding out for 4% or 5% mortgage rates, you may be waiting longer than you’d like. It’s going to take far more negative economic news to see rates fall significantly.

It’s also worth pointing out that your personal financial situation matters more than your interest rate. If you’ve got a solid stream of income and a long-term plan for paying off a home loan, waiting for a perfect rate might not be worth it.

Home prices aren’t likely to bottom out 

After years of steady growth, home prices could hypothetically crash if the bubble bursts. But in today’s housing market, real estate prices won’t likely go down in a big way.

Historically, home prices don’t actually fall much during recessions. The 2008 housing crash was the exception, not the rule. What we’ll probably see is slower appreciation or small dips in certain markets, especially in areas hit by higher insurance costs, taxes or natural disasters (Florida, Texas and Louisiana come to mind). We could see home prices drop in some areas of the country as supply goes up. 

But nationwide, we’re still dealing with low inventory. Until that changes, it’s hard to see prices dropping dramatically. Plus, given high construction and labor costs, it’s clear home prices aren’t bottoming out anytime soon.

It’s not always cheaper to wait

If you’re financially stable, it could be cheaper to buy a home in a recession. You might find better deals, less competition and more negotiating power. But if lending tightens, getting a loan could get tougher. That’s something we’re already starting to see with condos and certain types of properties.

There’s also the “wealth effect.” When people feel wealthier, like when their stock portfolio or home value is up, they’re more confident making big purchases. But when those numbers start to slide, or there’s even a threat of job insecurity, even if nothing’s really changed day to day, people pull back. Economic turbulence affects buyer activity in a big way. If someone just lost $20,000 in their 401(k), they’re not rushing to get a new mortgage.

There’s no perfect time to buy

The best time to buy a home is when it makes sense for you. If you’ve got a steady income and strong credit, and you’re ready to settle down, an economic downturn in the housing market could actually work in your favor. 

Just don’t wait around for some magical “perfect time” to take out a mortgage. The green light most people are waiting for doesn’t exist. If you prepare, stay informed and work with the right team, you can make a smart move no matter what the economy’s doing.