As concerns about a potential recession in 2025 grow, many are questioning how such an economic downturn could impact the U.S. housing market.

Why It Matters

With inflation concerns and fluctuating interest rates, the economy is facing a pivotal moment. A potential 2025 recession could significantly impact the housing market, causing home prices and mortgage rates to drop. This scenario presents opportunities for buyers to enter the market at lower costs. However, it also raises concerns about financial stability for current homeowners and the broader economic implications.

What Would a Recession Do to the Housing Market?

Historically, recessions have led to decreased demand in the housing market, resulting in slower home sales and, in some cases, declining home prices. During economic downturns, consumer confidence typically wanes, leading to reduced spending on significant investments like homes. Consequently, sellers may need to adjust their expectations, leading to more favorable conditions for buyers.

Danielle Hale, chief economist at Realtor.com, told Newsweek the housing market’s response to a recession varies widely, as seen in past downturns. She noted the short-lived 2020 recession led to a rapid rebound in home sales and prices, while the prolonged 2007-2009 recession resulted in a slow recovery and significant price declines. She went on to state if a recession occurs now, home sales may not drop much further, but increased financial strain on homeowners could lead to rising inventory and softening prices.

How Would Mortgage Rates Be Impacted?

In response to a recession, the Federal Reserve often implements monetary policies aimed at stimulating economic activity, such as lowering interest rates. These actions can lead to reduced mortgage rates, making borrowing more affordable for potential homebuyers. Lower mortgage rates can increase purchasing power, allowing buyers to afford higher-priced homes or secure more favorable terms on their loans.

Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek that mortgage rates typically decline during a recession, with the pace of decline depending on the severity of the downturn. He noted even without a formal recession, rates are expected to fall as high prices and interest rates reduce buyer demand, potentially accelerating if a recession occurs.

Is the U.S. Headed For a Recession?

As of early 2025, economic indicators present mixed signals regarding an impending recession. While certain sectors show signs of slowing growth, others remain robust. Factors such as global trade tensions, consumer debt levels and geopolitical events contribute to economic uncertainty.

Beene told Newsweek that while economic indicators suggest a potential recession, it is too soon to say for certain. He noted that tariffs, declining retail sales, stagnant hiring levels and policy uncertainties contribute to economic concerns, but more sustained data is needed to confirm whether a full recession is imminent.

Kevin Thompson, founder and CEO of 9i Capital Group, told Newsweek that the U.S. is heading toward a recession, citing uncertainty in the small business and manufacturing sectors and inventory struggles in various industries as a clear sign of economic slowdown.

Is It Cheaper To Buy a House in a Recession?

Purchasing a home during a recession can offer advantages, primarily due to potential declines in home prices and lower mortgage rates. Buyers may find more negotiating power, reduced competition and opportunities to purchase properties at discounted prices.

Hale told Newsweek that home prices and mortgage rates can decline during a recession, making it cheaper to buy a home, though this isn’t always the case. She noted that past recessions, particularly the mid-2000s, have shaped consumer expectations for better homebuying conditions.

Thompson told Newsweek that housing supply often increases during a recession due to financial struggles, while demand weakens from job losses, leading to lower home prices. For buyers with available capital, this can present opportunities to purchase homes at a discount.

What Is the Average Price of a House in the U.S.?

According to data from Redfin, the median sale price of a home in the United States was $418,284 as of January 2025, reflecting a 4 percent increase compared to the same period in the previous year. This upward trend in home prices is influenced by factors such as limited housing inventory and sustained demand from buyers. While home prices have risen nationally, the rate of increase has moderated compared to the double-digit growth observed during the pandemic years.

Which State Has the Lowest Home Prices?

As of December 2024, West Virginia had the lowest median home price in the United States at $249,000, according to Realtor.com. This affordability is reflected in the state’s typical monthly mortgage payment, which averages around $1,838.

Other states with relatively low median home prices include Ohio and Michigan, with median list prices of $252,500 and $268,700, respectively. These states offer more affordable housing options compared to coastal regions, making them attractive to first-time homebuyers and those seeking lower living costs.

What People Are Saying

Danielle Hale, chief economist at Realtor.com, told Newsweek: “There is no one size fits all response of the housing market to a recession. …Following the most recent, pandemic-induced recession that lasted from February 2020 to April 2020, existing home sales fell sharply from roughly a 5.6 million to 4.1 million unit pace in a span of months, and then just two months later had climbed back above the pre-recession pace as falling mortgage rates and excess time at home created both willingness and ability for households to move and buy homes. Home price growth slipped from roughly +8.7% to 3.0% for typical sales, but also rebounded quickly.

In contrast to this sharp, but short-lived contraction, the prior recession from December 2007 to June 2009 dragged on for 18 months. Home sales had slowed even before the recession began, dropping from a high pace of more than 6 million in the year before the recession to 4.4 million by the time the recession began. Home sales cratered at a low of 3.8 million midway through the recession and slowly climbed higher. Home prices also fell even before the recession began and continued to do so until 8 months after the recession ended, falling by more than 20% cumulatively.

If the U.S. economy were to tip into a recession now, home sales are barely above long-term lows and may not have much further to fall. But economic stress among homeowners could prompt faster inventory growth that could lead to softening prices, a phenomenon we have not seen in a long time.”

Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: “As much as Americans want to hear a definitive “yes” or “no” when it comes to the question of a recession this year, the real answer is it’s too soon to tell. The last few weeks of economic indicators certainly point to one. Some major retailers posted sales numbers below their projection and alerted investors to potential falling demand, especially if tariffs hit prices. Likewise, hiring levels seem to be at their most stagnant level in a decade.

When you factor in the uncertainty right now with what economic decisions the new administration is making, it’s easy to see why the outlook is less than rosy. At the same point, we need more sustained data to say for sure. We’ll know in a few months time if this is a full-blown recession or if these are a blip on an otherwise optimistic economic timeline.

Typically, mortgage rates start to decline during a recession and can dramatically do so depending on its length and financial severity. I do think regardless of whether we enter a formal recession or not, the long-term outlook for mortgage rates is one that sees them coming down from the current highs. We’re starting to see demand decline in many top real estate markets as high prices aren’t budging, and high interest rates continue to keep many potential buyers out of the purchasing space.

Eventually, that will produce more of a decline in sales, and that will trigger rates to fall. However, if we are entering a recession, that process can accelerate quickly. Ultimately, the market will decide, as it always does.”

Kevin Thompson, founder and CEO of 9i Capital Group, told Newsweek: “I believe the U.S. is heading towards a recession, particularly due to the uncertainty within the small business and manufacturing sectors. Many industries are being forced to either pull forward inventory purchases or delay them to avoid being stuck with inventory they cannot sell or would have to sell at a loss.

…During a recession, housing supply often increases as people lose homes, and asset values tend to decline, reducing home equity. Demand for housing also weakens due to job losses. For those with available capital, this could present an opportunity to purchase homes at lower prices.”

What Happens Next

Recent tariffs and economic policy shifts, including President Trump’s remarks on a potential recession, have heightened concerns about economic instability. Investors are watching stock market fluctuations and consumer confidence levels closely, as trade tensions and policy uncertainty could impact business investment and hiring trends.