As the experts analyze and debate the latest economic data, the conversation about when the next downturn will come and how bad will it be for the housing market has evolved as a central focus. Sales and home appreciation already showed signs of slowing last year – and the prognosticators are now trying to determine if this is the year that we officially dive into a recessionary home market – or will it be in 2020?

By most accounts – at least for housing – the next dip in the economy is not going to be as dramatic and foundationally disruptive as the Great Recession that began in 2008. For starters, we have learned some lessons from that period both on the consumer front and on the regulatory side where home loans are very much more scrutinized in terms of qualifying borrowers and eliminating as much risk as possible.

Simply put, lenders are not taking as many chances, and neither are consumers, who are being more cautious in their housing decisions. The lack of inventory since the recession is a testament to how many current owners have decided to wait and evaluate their own circumstances before selling and jumping into another home that could entail a larger financial commitment. Staying the course with a property has become much more fashionable than the quick turnover that was pervasive before the recession.

With consumers, lenders and developers being more cautious these days, the road to creating wealth has changed. Some have chosen to try the stock market, which has proven to be wildly unpredictable and very susceptible to wide swings. Housing was and is always the more conservative – but more-sure investment. However, the recession crashed that vehicle for many consumers.

A majority of Americans still have the bulk of their wealth tied up in the value of their homes. Much of this is because of the age old benefits that include the historical appreciation of homes, the fact that you can live in the investment – most of the time a mortgage payment is cheaper than rent and it is tax deductible (to a point) – and the ability to leverage the investment with a relatively inexpensive loan.

But with these facts is some newly detailed research that shows that the much-discussed wealth-gap in America has grown larger during the housing bust of a decade ago. The real estate web site Zillow has published research showing that the foreclosure crises of 2007 to 2015 hit the bottom third price tier of homes much worse that the highest third – and by a pretty large margin. A whopping 45.4% of the foreclosures during this period occurred in the bottom-third of homes in terms of value, as opposed to only 16.9% in the top third. And during the recovery, the previously foreclosed homes – most of them in the lower run of prices – recovered in value at 1.6 times faster than the typical American home.

Simply, for those who had most of their wealth as home equity and lost it – and then perhaps for job or family reasons couldn’t continue making the mortgage payments and lost their homes in foreclosure because the equity had evaporated – they became renters. Thus, they lost the opportunity to build more wealth as the market came back since their credit hit and lack of savings prevented them from re-entering the market.

Rents also skyrocketed with more demand in this segment of the market, so those who lost their homes were many times paying more for their living expenses monthly, which prevented them from saving to re-invest in the turning housing market or other investments.

If these foreclosed homeowners had been able to keep their homes, they would have seen their home’s equity – and wealth – increase. In fact, throughout the recovery, previously foreclosed homes appreciated faster year-over-year than homes in general, peaking at 12% in November 2013 and growing at a current annual rate of 10.3%. Overall U.S. home values, over the same time, reached a high of 8.2% annual growth in March 2018, with growth slowing to a pace of 6.5% by August 2018.

According to Zillow, the foreclosure rates began to level off in 2016, but by that time you had almost a decade of falling values. Previously foreclosed homes lost 42.6% of their value during the recession but have since earned it all back and then some. Today, the median, previously foreclosed home is worth 0.1% more than it was during its pre-recession peak, a tribute to the accelerated pace of home value growth over the past six years. Over the same time, the typical U.S. home value fell at a lesser rate of 25.9% and is worth 8.1% more today than it was before the recession. Throughout the recovery, the typical foreclosed home grew in value 1.6 times faster than the typical home nationwide, further demonstrating that on the lower-end of the market the swings (and losses) have been on a much wider scale.

What this all means going forward – even if there is a decline right around the corner – is that the most vulnerable consumers who are no longer homeowners and are now renters may have to wait even longer to recoup what they lost more than a decade ago.

 (Terry Ross, the broker-owner of TR Properties, will answer any questions about today’s real estate market. E-mail questions to Realty Views at or call 949/457-4922.)