Should You Buy a Home Now or Later? What to Know About Buying in a Recession
These are general rules of thumb in a market that has high inventory and fewer buyers. For most recessions in the history of recording them, housing market did not dip below the trendline of 5% growth, EXCEPT for the housing crash of 2008. Overall there is slowdown of growth, which means that the value of your home just doesn’t climb as high as expected in an up market. In Seattle it’s yet to be seen if the economy can overall income can support a balanced market. Here, guest contributor Natalie Jones of Homeowner Bliss talks about what it’s like buying in a recession.
After several years of growth, the housing market is wavering. Should you take advantage of lower prices and less competition, or is buying a house on the precipice of a recession asking for trouble? While there’s no crystal ball that can tell us what will happen to the housing market in the wake of the coronavirus pandemic, there are certain things buyers should know before purchasing property in a recession.
The Risks and Rewards of Buying in a Recession
If you’re confident in your job security and can afford the costs of homeownership, a recession can be a great opportunity to buy a home. With fewer buyers on the market, it’s easier to score a deal. Not to mention, mortgage rates are at historic lows.
That’s not to say it’s a good time to take risks, however. Anyone getting into homeownership should be certain they have enough money to cover the costs of buying a home while leaving their emergency fund intact as well as a job that’s not going away. Homeowners who are forced to sell during a recession often do so at a loss.
That also means it’s not a good time for flippers. Unless you plan to hold onto a property for several years, reconsider diving into real estate investing during a recession.
How to Get a Great Deal on a Home During a Recession
For those who are in a position to buy, a recession is a great time to find a deal on real estate. Pre-foreclosures, foreclosures, and bank-owned properties usually cost less than homes at market price, but buying them requires some know-how — and sometimes a lot of cash.
Many of these properties will be fixer-uppers. Don’t expect sellers to make repairs and instead, budget renovation costs into your offer. If you have enough time, call around to contractors to get estimates for repairs. But if you need to move quickly to secure an offer, use an online calculator to get a rough estimate of costs. Roofing calculators, for example, take your roof’s nominal size and pitch to calculate the number of squares you need and in turn, the cost.
Listed properties, on the other hand, are ripe for negotiation. A recession is a buyer’s market, and sellers are likely to be more flexible on price, closing costs, and credits. Know what to negotiate, but also understand local market conditions so you recognize a good deal when you see one.
Getting a Mortgage in a Recession
Financing is the final piece of the puzzle for recession homebuyers. In the Great Recession, banks tightened lending standards making it harder for homebuyers to qualify for loans. It remains to be seen if that will happen following the coronavirus pandemic, but regardless, it’s never a bad idea to get your credit in shape.
There are a few things buyers can do to improve their creditworthiness, including paying down debt, keeping credit balances low, and fixing errors on their credit report. It’s wise to avoid opening new accounts as you prepare to apply for a mortgage, but many buyers don’t realize they should avoid closing accounts too. Both moves can impact your credit score, leading to higher mortgage rates.
Overall, it’s not a bad idea to buy a house during a recession. However, it may be a bad time for you depending on your situation. While buying a house in a down market can be a smart move for people in a comfortable position, it’s risky if you’re not sure of your financial situation. Before taking the plunge into the real estate market in the midst of a recession, make sure you’re prepared for all the responsibilities of homeownership — and if you are, go for it!