Global Recessions and Housing Price Downturns

Further to the inverted yield curve signaling a coming recession, the New York Fed reports one more recession signal on July 5 as shown in Figure 1. The market is betting that the Fed would cut interest rate in July to deal with the recession. Many other countries have started cutting interest rates already, for details see Yiu (2019). It seems that a global recession is likely to be coming.

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Figure 1 New York Fed’s (2019) Recession Probability Indicator.

It is quite obvious that whenever there is a global recession, then there would also be a global housing price plummet, as when more people are unemployed or underemployed, then fewer people would buy houses. Yet, if you want to have evidence, Hirata et al. (2013) provide some casual observations on their relationships in the past few recessions, as shown in Figure 2.

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Figure 2 Coincidence of Housing Downturns and Recessions. Source: Hirata et al. (2013)

Even though the two curves and the grey bars are not exactly coincided, their peaks at the grey areas are clear. The four grey bars represent 1975, 1982, 1991 and 2009 global recessions, and the strongest one is the latest 2009 one, where more than 80% of the sampled countries experienced both recessions and house price downturns. The authors name them as coincidences, but they provide some insights in their article.

Further observations from Figure 2 show an interesting pattern of the red hidden line curve. There seems to be "aftershock” for housing price downturn. When a recession had been recovered, housing price downturn seems to have a second peak.

Hirata et al. (2013) further found that “global interest rate shocks tend to have a significant negative effect on global housing prices.” (see Yiu, 2018) Furthermore, they found a very strong relationship between credit supply and housing price movement, as shown in Figure 3. The first chart shows the global housing prices, and the 4 grey bars indicating the global recessions. All the 4 bottoms coincided with the recessionary periods.

But more interestingly, the third chart showing the credit supply seems to have a very strong and positive correlation with the house prices. All the 4 bottoms of credit supply coincided with the recessionary periods.

“The response of global house prices to an increase in global credit is positive and significant. Not surprisingly, in both sub-periods, when there is robust growth in credit, house prices tend to appreciate. … In the full sample, global interest rate shocks account for close to 30 percent of the movements in house prices, with credit contributing a more modest 10 percent.” (p.17)

Interestingly, such a finding may become a circular explanation. When a global recession comes, a global housing price downturn can be expected. Then central banks would start cutting interest rate and easing their credit supply, and then a rebound of housing price can be expected. If that is true, then investors would expect the rebound and would not sell their properties. If that is the case, how come would housing price drop? The circular explanation must have something wrong. Can you figure it out?


Hirata, H., Kose, A., Otrok, C. and Terrones, M. (2013) Global House Price Fluctuations: Synchronization and Determinants, WP/13/38.

Yiu, C.Y. (2018) Global Housing Prices Synchronization, Medium Dec 3.

Yiu, C.Y. (2019) Are you ready for the upcoming global recession?, Medium June 20.

ecyY is the Founder of Real Estate Development and Building Research & Information Centre REDBRIC

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