You want to buy a home, but you are worried about economic uncertainty. As a real estate agent I understand this, especially for first-time homebuyers who are asking is it smart to buy a house in 2023. I am here to tell you it is. I am helping people find and buy homes for sale in Northwest Indiana every day.
This post will help you understand why is a recession a good time to buy a house and the pros and cons of buying a home before or during a recession. I have also included advice about why it can be good to buy a house during a recession. I also share some tips to help you buy a home defensively.
What is a Recession and What Impact Does It Have on House Prices?
Traditionally, a recession is defined as two or more consecutive quarters of very weak or negative GDP growth. More recently, economists have stated defining a recession should include more variables. These include:
- A reduction in GDP growth
- Increases in unemployment
- Reduction in consumer spending
- Lower savings rate
Home prices typically stagnate or fall during a recession due to fewer homebuyers in the marketplace. Many homebuyers view a home purchase as a large purchase with a lot of risk. Therefore, many people are reluctant to think about buying a house during a recession. As demand falls so will home prices.
Is the U.S. in a Recession Now?
It is unlikely the U.S. is in a recession now. Though GDP growth has been negative over the last two quarters, other variables do not indicate the U.S. economy is in a recession now.
Economic metrics outside of GDP growth do not indicate the U.S. is in a resolution. The U.S. currently has very low unemployment, U.S. savings rates are close to the long term average, and wage growth is occurring.
Pros and Cons of Buying a Home Before a Recession
What we know is a recession will occur because they always do, eventually. The question is when. Here are the pros and cons to help you decide should you buy a house before a recession.
Benefits to Buying a House Before a Recession
Reluctant homebuyers should be aware of the benefits of buying a home before a recession while the economy is still healthy.
- Increased Likelihood to Get a Mortgage – When the economy is doing well it is likely you are earning the most you can earn in your current employment. Higher earnings will lower your debt-to-income ratio. This will then increase your likelihood of getting approved for a mortgage.
- Control Your Housing Destiny – Locking in a housing solution by becoming a homeowner is the best way to control your housing costs. When renting you are at the mercy of the landlord’s desire to increase rent. Avoid this and rising rents in a good or bad economy by becoming a homeowner.
- Quality Homes Will Be for Sale – When the economy falters homeowners put off home maintenance. Those same homeowners who become home sellers will be selling a less than perfect product. However, if you buy when the economy is good it is more likely you will be buying a home that has been cared for.
- Opportunity to Refinance at a Lower Rate – When you buy a home in a healthy economy you will likely pay an unmanipulated price for the home. This is because interest rates will be more normal. Once in a recession interest rates might fall to prime the economy for more consumption. At that time, you can refinance to a lower rate.
Consequences of Buying a House Before a Recession
There are disadvantages when buying a home which could cause you to delay your home purchase.
- No Discounts – Home prices will be higher during a time of healthy economic activity. The homebuyer audience is at its largest when the economy is good. Therefore, home sellers have a high likelihood of selling even with their high home prices.
- Competitive Marketplace – With more homebuyers comes more competition against you. The homebuying process can get frustrating. This will be due to needing to act quickly when a good home comes on the market. Also, you should be prepared to lose out on some homes.
- Brisk and Sparse Inventory – Fewer homes are typically on the market when the economy is good. This is due to the fact homebuyers are rapidly purchasing those that are of good quality with a fair price. There may be less to choose from, and homes will sell quickly during a times of a healthy economy.
Is Buying a Home During a Recession Worth It?
Many homebuyers may be reluctant about buying a house during a recession. Buying a home during a recession can be intimidating, but should not be automatically ruled out. The consideration when asking should you buy a house during a recession is your own income potential.
Homebuyers with more recession proof employment or income should consider buying a home during a recession. Buying a house during a recession is a great opportunity for people with a low risk of losing their job or having a reduction in income.
Pros and Cons of Buying a Home During a Recession
There are benefits and consequences of buying a home during a recession which you should consider. Buying a home during a recession can be a great opportunity, but it has some risks, too.
Benefits to Buying a House During A Recession
- Lower Home Prices – There are fewer homebuyers during a recession. This low demand from the buy-side will cause home prices to fall. Therefore, you can typically get a better price on a home when buying during a recession.
- Less Competition – Fewer homebuyers means less competition and a more relaxed homebuying process. It is unlikely you will feel rushed or pressured to make quick decisions.
- Better Selection – As the market slows down the number of homes for sale will likely increase. This means there will be more homes for you to choose from.
- Seller Concessions – Seller concessions for closing costs or repairs become more common and can help you buy a home during a recession. A closing cost concession can lower your funds to close making it more affordable to complete the transaction.
Consequences When Buying a Home During A Recession
- Falling Home Prices – When buying a home during a recession you can get a good price. However, it is difficult to time the market. Therefore, you might buy a home at a great price, but the home you buy may be worth less before the recession ends.
- Risk of Foreclosure – During recessions job losses increase. If you lose your job or have a reduction in income you may not be able to afford the payment. Now that you are a homeowner you could risk getting foreclosed upon. A foreclosure can negatively affect your ability to buy a home in the future.
- Less Likely to Sell – Keep in mind the risk of you needing to sell the home in the near future due to a change of circ*mstances, life event, or job relocation. During a recession it takes longer to sell a home.
Advice for First-Time Homebuyers During a Recession
First-time homebuyers should seriously consider buying a house in a recession or during times of economic uncertainty. There are several reasons for this.
First, first-time homebuyers do not have a home to sell. Therefore, they will not be taking a low price for their current home because they do not currently own a home. Instead, first-time homebuyers are beneficiaries of the low home prices which occur during a time of economic downturn.
Secondly, first-time homebuyers purchasing during a recession are likely to get more from sellers. A seller concession as a closing cost credit can help you save thousands of dollars at the closing table. This can make it much more affordable to get the home purchased.
Lastly, the homes typically purchased by first-time homebuyers are the least likely to be affected by falling home prices. Housing is a basic need common to all of us. The smaller homes in any area are always in demand because they are more affordable. Therefore, these homes are the least affected by falling home prices during a time of uncertainty. Sometimes, these more affordable options actually increase in value because they are more affordable.
Conclusion
Only you can determine whether or not you should buy a house now or wait for recession.
If you have a low likelihood of losing your job due to a recession you should purchase a home if you want to buy a home. There are reasons that make it good to buy a house in a recession.
When buying a house during recession periods buy the home defensively. When buying a home, look for a home which meets your needs. To be more defensive avoid a home with additional features that you do not need but cause the price of the home to increase.
I can help you find homes for sale in Northwest Indiana that meet your needs. First, I need to know more about your needs. You can share those with me by completing the Quadwalls HomeFinder Assistant today.
