The likelihood that the U.S. Federal Reserve will achieve its goal of lowering inflation by raising interest rates without plunging the country into a recession is increasing - at least for now.

But is a soft landing good for the housing market? Yes and no.

Danielle Hale, chief economist at Realtor.com®, says, "Another recession will happen eventually." It's really just a matter of time.

Dodging a recession will keep demand for homeownership strong. If people are unemployed or worried about job security, they are generally reluctant to buy the biggest property of their lives and lock in high monthly payments for the next 30 years.

However, an economic downturn can also bring down high home prices and mortgage rates. As more homes and foreclosures become available for sale, this will help ease the housing shortage.

Many real estate economists believe that a recession is unlikely in the final months of the year, but they do not rule out the possibility of a recession in 2024 and 2025. The economic impact of the Fed's 11 interest rate hikes continues.

Ali Wolf, chief economist at construction consulting firm Zonda, said, "The prevailing view is that we're experiencing a soft landing, but I don't think we have enough evidence to support that yet." It is still possible that we could see job losses by the end of this year or early next year.

Typically, two to three years after the Fed starts raising interest rates, the economy falls into some form of recession, said Rebecca Rockey, deputy chief economist at Cushman & Wakefield. The Fed began raising rates about a year and a half ago, in March 2022, Rockey said.

It's probably not a very safe assumption to think that we've seen the full impact (of the rate hikes)," Rockey said.

If the Fed doesn't succeed in achieving a soft landing and the economy does fall into a recession, it's not expected to be as painful as the Great Recession. Many are optimistic that the recession could last less than a year, and few expect layoffs on the scale of the late 2000s.

In addition, today's homeowners are better qualified to weather the financial storm than those before the financial crisis, when it seemed that anyone could get a mortgage. That should prevent another wave of foreclosures and a sharp drop in home values.

Wolfe says, "As long as it's a mild recession, I don't think it's going to have a big impact on the housing market." Some people are going to have to take on more debt and some people are going to lose their jobs, but I don't think it's going to have a major impact on the lives of most Americans.

A huge impact on the lives of Americans.

Ironically, the recession may boost the housing market, which has been short of homes for sale.

If homeowners can no longer afford to make their mortgage payments, there will be more homes for sale as people move their families or go into foreclosure. Wolfe expects a mild recession next year, lasting between six months and a year.

If unemployment lasts longer than six months, you may see some people needing to sell their homes. That could free up some inventory, and more homes for sale could alleviate some of the offers over list price and bidding wars that have erupted over the limited number of properties for sale.

But Wolfe said even a recession might not be powerful enough to bring down home prices significantly, especially if it's short-lived. A recession may force some potential homebuyers to decide to take a break from purchasing, but demand is expected to remain strong because of the large number of homebuyers. Combined with a distressing housing shortage, the lack of homes for sale is likely to put a floor on how far home prices can fall.

"A recession increases the likelihood that home prices will fall," Wolfe said." But that doesn't guarantee that home prices will fall.

A recession may not make homes cheaper, but it could make them more affordable.

Once the economy has some problems, the Fed will likely reverse course and lower interest rates. This should put some downward pressure on mortgage rates. According to Freddie Mac, current rates are the highest they've been in more than 20 years, averaging more than 7 percent for a 30-year fixed-rate loan.

Behind the slowdown in the housing market are higher mortgage rates. Currently, home sellers (and often home buyers) don't want to list their properties for sale, nor do they want to give up the record low rates they locked in during the pandemic. As a result, they are staying put. If interest rates fall, they are more likely to sell their properties, which would help alleviate the housing shortage.

At the same time, lower rates equal lower mortgage payments. This will make it more affordable for homebuyers, especially first-time buyers.

The housing market tends to lead the economy out of recessions. "We were the first in and the first out," says Odeta Kushi, deputy chief economist at First American Financial Corp. As interest rates begin to fall, people tend to trade. This will boost the economy.

Many economists worry that real estate will once again cause problems for the economy. This time, however, they are concerned about the business side of things, not housing.

The concern is that commercial property owners of offices, flats and other buildings may default on their loans in the coming years. These loans tend to be much shorter than 30-year home mortgages. Loan terms are usually (but not always) between 3 and 15 years. Many of the loans are interest-only, and about half of the loans have variable interest rates. Many of these loans have a balloon payment at the end of the term.

Owners often try to refinance before the large balloon payment is due, but interest rates are much higher now than they were a few years ago. With owners unable to make up the difference by raising rents, higher interest rates are causing them to make higher mortgage payments. Office buildings are facing record vacancy rates, and apartment building owners are seeing rents begin to weaken or even decline.

Commercial property owners will have about $1.4 trillion in debt coming due over the next three years, according to Cushman & Wakefield.

Devyn Bachman, senior vice president of research at John Burns Research and Consulting, said, "There are a lot of positive signs in today's economic context, but there are also some dark clouds on the horizon that we can't ignore."

Devyn Bachman, senior vice-president of research at John Burns Research & Consulting, says: Commercial property is definitely on my radar and could cause some distress in the future.

Cushman & Wakefield's Rockey acknowledges that these landlords will face challenges. But she doesn't think commercial property will cause another recession.

Rockey says: "There will be losses, but we think they are manageable." We don't think it will trigger a recession.