“America is in a recession, so why are home buyers so optimistic and house prices rising?“

I answer questions on Quora sometimes. I choose ones that either interest me personally or professionally. This one is a question that I have been hearing professionally, so it was one I considered answering.

When I read the first answer to this question, I sighed. It’s not based in reality, and it doesn’t even answer the question (which is an interesting one!) I realized my answer needed to include a truth sandwich. (I’ve written about this verbal self-defense technique on my Rona Fischman blog.)

In short, I needed to answer the original question without giving support to the partisan non-answer supplied by a person or bot that reacted to the statement that America is in a recession.

This was the first answer (by someone else):

Why do you think America is in the middle of a recession?

Is this something a college professor of economics (who has never hired anyone except a graduate assistant or someone to cut the grass or wash the car or have they ever owned or run a actual business) or did Biden tell you so?

I understand that they are welcome to their opinions but I will not be misled by these short sided pronouncements.

If this gets collapsed, I understand . .. but I will still be correct!

 

This is how I answered

To answer your question:

People who can afford to buy a house in 2020 have savings (also called “wealth”) for their down payment. They have a job that supports a mortgage for the rest of it. If their job is stable, and they are fully employed again (after a furlough because of Covid-19), they can get a mortgage now. Or, they may have so much wealth, they can buy a house for cash. People in either of those situations are able to buy when most of us are not.

Those well-off enough to buy just spent some months this year getting unhappy about things in their houses. They want to get something better, in case they need to isolate again. Some who are working full-time at home want more space. That is why there is demand.

There is also a limit in supply. Inviting strangers into houses does not feel safe during a pandemic for some people, so some people who might want to sell their homes are choosing not to sell this year. When demand is steady or even increased and supply is down, prices go up. It’s that simple.

Regarding the assumption about being in a recession.

The evidence of your own eyes will tell you that people are losing their jobs and businesses are closing. If you don’t see it, chances are you and your social sphere are among those who are wealthy or work in businesses that were not affected by the pandemic (such as hospitals, high tech, food retail businesses, shipping, and others). Broaden your vision.

Heady, “elite” sources like USA Today (!) say the average American is struggling to make ends meet each month. 59% of U.S. adults say they live paycheck to paycheck, according to a 2019 survey from Charles Schwab.

When more than half of all Americans report that they do not have savings, how do you think they have fared when they needed to stay home in order to slow down a deadly virus? Depending on how the pandemic is handled–both in terms of controlling the disease and helping people without savings to maintain home and hearth–some Americans will fall into poverty…even while the top 20% (or so) may go on buying houses.