Posted on April 13, 2020 in Market Analysis

Buy a house during a recession

The Coronavirus pandemic has led to massive economic downturns influencing businesses and individuals alike. As per the IMF, the COVID-19 pandemic will lead to a global recession this year. If reports are to be believed, then this recession could be even worse than the one we witnessed after the global financial crisis of 2008. However, the IMF has also predicted that the global economy should start recovering in 2021.

For people looking to buy a house, the idea of recession is likely to bring back memories of what occurred during the Great Recession of 2008-2009. This brings forth an important question: Should you buy a house during a recession?

To answer this question, let’s do a quick review of what happened after the global financial crisis of 2008 and how the real estate market is affected during a recession.

Throwback: What Happened to the Housing Market in 2008?

Prior to the housing market collapse in 2008, lenders dealt in subprime mortgages that enabled anyone to buy a home. In most cases, these mortgages even granted homeownership to those who could not afford it.

However, eventually, real estate prices went down and as a result, homeowners found themselves owing more money than what their home was worth. Many lost their primary source of income during the global financial crisis, as well. The stock market crashed and there were large-scale layoffs. Eventually, homeowners could not make their mortgage payments and ended up defaulting. Consequently, nearly 9.3 million Americans lost their homes.

With the Coronavirus pandemic forcing the economy into recession, one has to wonder if history will repeat itself in terms of the housing market debacle.

This isn’t necessary. Ever since the Great Recession, banks and other lending institutions have followed more stringent regulations regarding mortgages. Underwriting standards have improved, as well. Unlike the 2008 crisis, there will not be a wave of foreclosures that can lead you to lose your home.

 In general, most recessions are not as strongly tied to the real estate market. You will see some changes, but the market will not collapse. Primarily, recession affects the housing market because people lose their jobs. As a result, they are reluctant to make big financial decisions such as buying a home, which can cause demand to fall. When this happens, home prices will reduce as well.

 If you view these effects in the long term, then recession can be the ideal time to buy a home. Let’s take a look at some of the benefits of buying a home during a recession.

What Are The Benefits of Making a Home Purchase During Recession?

There are plenty of reasons why you should buy a house during a recession. These include:

1.   Lower Prices

As mentioned earlier, the biggest benefit of purchasing a home during a recession is that housing prices tend to fall during this period. This can make homeownership more accessible to buyers looking to invest in a house. If you have access to a reasonably high and stable source of income and have a sufficient amount of money in savings, then I strongly suggest that you invest in a home.

The Federal Reserve Bank has also slashed mortgage rates to nearly zero. Thus, you can also benefit from a low-interest rate which will significantly reduce your cost of borrowing.

2.   Less Competition

With fewer buyers willing to invest in a home, recession causes the amount of competition to decline. As a result, listings tend to stay on the market for a longer period which can be worrisome for sellers. The lack of competition can make it easier for you to negotiate prices and get a concession. For instance, sellers can be willing to pay for closing costs during a recession. This can be difficult to achieve when the economy is healthy and there is plenty of demand in the housing market. You may also get access to other perks such as buying a fully or partially furnished house at a lower cost.

3.   Think Long Term

It’s an uncertain time for the economy and being aware of what’s happening and how it will influence you is necessary. However, you must also think about buying a house as a long-term investment. It’s true that things are bad right now but they won’t always stay that way. The economy has simply come to a standstill, but in the long-term, it will recover and eventually boom again. When it does, the value of your home will increase, as well.

Is There a Downside?

While there are plenty of benefits to buying a house right now, you should keep an eye out for some of the challenges you are likely to face, as well. For starters, it can be difficult to secure a mortgage during a recession. You must have the financial capacity to make mortgage payments for the first few months in order to get financing.

You might also face competition from real estate investors who are much more financially secure and can offer to buy a home at a higher price.

The Bottom Line: Buying a House During Recession Is Beneficial In the Long Term

Buy a house

If you have a stable source of income and plenty of savings, then I strongly recommend you buy a house during a recession. Not only can you benefit from lower prices, but the mortgage rates are also very low. It may sound scary at first, but you are investing in something that will provide you with safety and security for many years to come.

Get In Touch With Barbie King to Learn More

If you want to learn more about the real estate market and what you need to consider before buying a home, then feel free to contact me. I specialize in the Indianapolis real estate market and can help you find the best real estate listings in the area.

From pricing the home correctly and negotiating on your behalf to conducting home inspections, I can assist you throughout the purchasing process and enable you to buy your dream home faster than you may think.

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