A recession has many effects on the housing market, taxes, financing options, and more. If you’re hoping to buy a home in the middle of a recession, there are pros and cons to going forward with house hunting.
The Effect of a Recession
Recessions have large effects on the housing market. On the positive side, real estate prices are lower during a recession. Property taxes can decline. Many homeowners are more willing to lower their asking price, and banks are selling more foreclosed properties. Mortgage rates also tend to be lower.
However, you’ll need to shop around. Avoid homes that require extensive repairs—if a home was foreclosed, it may have gone several months without inhabitants or upkeep. Recessions can also negatively affect home values. Be wary of short sales and issues which can accompany foreclosures.
If you are able to make your payments, you shouldn’t worry too much. However, securing financing will be extra tough during a recession. Taking out a loan can be extra complicated, and the fact is interest rates can change significantly day by day based on the type of loan. Banks will be less likely to lend money, especially to those working in at-risk industries. Obtaining a mortgage can be difficult if the lender is unsure if you will still have a job the next day.
Look for a long-term financing option. A principal paydown will give your lender security and make the transaction easier. A loan term of 5 to 10 years at a low interest rate could be the way to go, even though it will most likely require a principal reduction of 10 to 20%.
A recession could be a good time to buy a house if you have 1.) stable employment, and 2.) lots of savings. You will have to be motivated to do your research and pay for inspections on your new home. In addition, you’ll need to be prepared for heavy losses if you find your chosen home is ultimately not the right fit for you. A recession entails an abundance of uncertainty, so having a nest egg is an essential.
If this describes you, then a recession might be the perfect time for you to purchase a new home. If you do not find yourself equipped with financial security, however, you may want to postpone your property search until more secure times.
A recession can be a scary, uncertain time. However, if you will be able to make your payments and finance the purchase, buying a home during a recession can be an excellent choice due to lower rates and extra foreclosures on the market.
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