The National Bureau of Economic Research (NBER) hasn't declared an economic recession. However, inflation, the aftermath of a three-year pandemic, and geopolitical conflict all contribute to America's unease about the economy's future.
So what does this mean for the future of housing? And is buying a home during a possible recession a good idea? We'll answer that question and more here.
Not All Recessions Are Created Equally
When most of us think of "recession" and "housing," we think of 2008, when the real estate bubble burst, creating a Great-Recession-style crash. Fortunately, not all recessions are created equal, and most experts agree that we are not at risk of repeating the past—right now, at least.
In fact, a mild recession may even create more economic opportunities for prospective home buyers who have adequately prepared and have resources.
The housing market has favored sellers for the last two years due to low inventory and high demand. The result? Bidding wars, rising rent, and a considerable hike in real estate prices. It was a market where buyers were willing to pay above asking prices.
During a recession, the market inverts to favor buyers, which means lower prices, a growing stockpile of unsold homes to choose from, and more negotiating power for buyers.
Lower Interest Rates
We’ve seen a considerable hike in interest rates since the Federal Reserve made moves to slow inflation in 2018. However, history shows us that interest rates do decline during a recession—which means lower rates and increased purchasing power.
In September 2020, homes spent a median of 16 days on the market. In 2021, nearly half of homes were on the market for as little as a week before pending. Contrast that to 2019, when homes spent an average of 30 days on the market.
This is a long way of saying slow markets create a surplus of inventory. Plus, that inventory sits on the market longer. And that gives prospective home buyers more choice and negotiating power.
Are There Any Cons to Purchasing a Home During a Recession?
There are a few downsides to purchasing a home during a recession. The biggest is stricter lending requirements. During a recession, lenders typically impose tighter lending requirements to minimize the risk of borrowers defaulting on their loans.
Additionally, recessions and economic instability often lead to job losses and financial uncertainty—and when that occurs, having funds tied up in real estate assets may not be ideal.
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