Disclaimer: This information is accurate and true to the best of my knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
"The economy is in dire shape, many fear we’re already in a recession, and home prices are still sky high. But none of that means you should automatically give up on your dreams of buying a home." —Leslie Cook
Homebuyers are certainly facing a tough market this year.
"Homebuyers are facing a tough market this year. Mortgage rates increased by more than 2 percentage points in the first six months of 2022, pushing the monthly payment on a median-priced home up by nearly 50% — to a whopping $2,514. Other economic indicators, including high inflation, a bear market for investors and the prospect of a possible recession, have people jittery as well." —Leslie Cook
Many believe that buying a home during an economic downturn is not a good idea, but there are additional factors to consider.
3 REASONS TO BUY A HOME DURING A RECESSION
"Not all recessions lead to a collapse in the housing market. In fact, most experts agree that today’s market is unlikely to end in a Great Recession-style crash. A recession might even open up more opportunities for buyers who are well prepared and have the financial resources." —Leslie Cook
1. HOME SELLERS MIGHT BE MORE FLEXIBLE
"For the past two years, it's been a seller’s market. Thanks to record low inventory, home prices have seen year-over-year double-digit growth, and bidding wars have been the norm, with buyers paying above asking price just to have a prayer of securing a home. Waiving contingencies, such as home inspections and appraisals, has also become a commonplace tactic used to make offers more attractive to sellers." —Leslie Cook
During a recession, home prices usually decrease.
"During a recession, however, home prices usually decrease as demand slows. This opens up the possibility of buying a home at a more affordable price than we've seen during the past two years." —Leslie Cook
2. INTEREST RATES AND MORTGAGE RATES WILL GO DOWN
"A recession means that economic activity has slowed enough for the Federal Reserve to try to stimulate economic activity by reducing the federal funds rate, or the interest rate banks charge each other for overnight loans." —Leslie Cook
That being said, if you do find your dream home, many experts would tell you to purchase it even if the interest rate is higher than you'd like it to be.
"However, most experts will caution against tying your homebuying decision to interest rates. If the right opportunity presents itself to buy the dream home you can afford at a higher rate, take it. You always have the option of refinancing your mortgage at a lower rate later on." —Leslie Cook
3. LESS COMPETITION LEADS TO MORE OPTIONS FOR BUYERS
"Competition for available homes has been so fierce that buyers have had to move fast. The typical home was selling in 15 days on average this past spring, with some buyers placing offers the same day the home was listed." —Leslie Cook
Much-needed inventory will likely become available as the result of a recession.
"As the housing market cools and more potential buyers step away from the market, some much-needed inventory will become available. There will also, unfortunately, be homeowners who for financial reasons have to sell their homes, adding even more supply to a market that is still well below normal levels." —Leslie Cook
5 TIPS FOR BUYING A HOME DURING A RECESSION
If you do decide to purchase a home during a recession, you'll want to get all of your ducks in a row:
1. GET YOUR FINANCES IN ORDER
"You should have a steady household income and a decent sense of job security. Ideally, you have a good credit score too. And you should be aware of all the costs of owning a home, including taxes, home insurance and long-term maintenance." —Leslie Cook
If you are not in a place financially to purchase a home, it's probably in your best interest to wait and set yourself up for success in the long run.
2. SET A BUDGET
"You want to know exactly how much house you can afford. Go over your finances and review your expenses. Determine how much you can set aside for a down payment. While a 20% down payment is considered ideal, in 2021 the median down payment was 13%. Other expenses to take into consideration are closing costs and potential repairs to the new home." —Leslie Cook
It is essential to have an emergency fund, especially if you are purchasing a new home.
"An emergency fund comes in handy in case of unexpected job loss, home repairs or medical expenses that may pop up. After factoring all of this in, determine how much you can comfortably spend on a monthly mortgage payment. Once you’ve set your budget, stick to it." —Leslie Cook
3. SHOP AROUND FOR A MORTGAGE LENDER
"You always want to find the best rate and terms for your mortgage. Mortgage lenders will offer different products and interest rates, so shop around before deciding who to go with....The most common type of mortgage in America is the 30-year fixed-rate loan, but it’s not always the option with the lowest interest rate. Adjustable-rate mortgages, for example, typically have a much lower rate that you can lock in for 5, 7 or 10 years, and could make a home purchase more affordable." —Leslie Cook
4. GET A PRE-APPROVAL LETTER
"Once you’ve selected a lender, it’s important to get a pre-approval letter for when you want to make an offer on a house. This means you’ve submitted all your required financial documents to the lender and have qualified to obtain a mortgage loan up to a maximum amount." —Leslie Cook
5. WORK WITH A KNOWLEDGEABLE REAL ESTATE AGENT
"A knowledgeable agent will have a good sense of home values in the area, can tell you if the list price is fair, and will be able to find out other useful information, such as whether you are facing competition for a specific home or whether the owner needs to sell quickly. In some cases, realtors can even help identify potential problems in the home that may require repair and help negotiate the price if it’s a major issue." —Leslie Cook
While it's always important to weigh the pros and cons of each decision you make, a recession shouldn't stop you from purchasing a home, especially if you're in love with it!