Is It a Good Idea to Buy a Home During a Recession?
The United States was recently and unexpectedly thrust into a recession. And while all signs point to a relatively quick recovery, this can leave you with feelings of uncertainty if you’re looking to buy a home or investment property. But should you feel nervous enough to halt your plans? Probably not, but you should be aware of what buying during a recession actually means.
A recession is simply an economic slowdown. Typically, these last for at least half a year, and most people don’t realize the full effects until we're firmly in the middle of it. In 2020, the global coronavirus pandemic shot us straight into a recession, and there is no doubt it will be at least 6 to 12 months before we recover.
How does a recession affect me?
Because a recession affects the economy as a whole, there is a good chance that you will experience some disruption to your personal finances. This might be in the form of job loss, stock market decline, or, as we’ve seen over the last few weeks, surging prices at the grocery store. If you’re planning to buy a home or investment during this time, you’ll need to pay more attention to your money as lenders may be a bit more cautious.
Financing during a recession
As a first-time homebuyer during a recession, it might make sense to pursue an FHA loan. PennyMac explains that these are popular because they offer flexible down payments, and, if you have good credit, you won’t be required to put down 20 percent. Lower payments and the ability to keep more money in your pocket can help you both buy a property and turn it into home.
Financing an investment property is a different experience. Regardless of your credit, you’ll likely be required to put 20 percent down. A credit score of 740 or higher is ideal for investment buyers.
Real Estate Prices
Real estate tends to lose value during a recession. This means that you can get more house for less money, which makes buying now that much more appealing. Factored together with low interest rates, if you can find the right house, you can potentially save tens of thousands of dollars over the course of your loan. Before you buy a home in Charlotte, partner with an experienced agent that understands the market and can help you find the right home.
Despite the recession, real estate across the country remains strong. Homes getting listed are being sold, and buyers are quickly snatching up available properties, particularly those that are priced to move. Because of this, you will have to act quickly when you find a home that you want. You will be a more attractive buyer and have a better chance at having your offer accepted if you:
Get preapproved. A preapproval means that your bank has evaluated your financial status and is willing to lend you X amount of dollars. This is different from a prequalification, which is not an official commitment.
Know what you want. Make a list of your “must-haves,” and share this with your agent early on. This way, they can keep an eye on “coming soon” listings, which you may not have access to until they hit the MLS.
See it first. Competition remains fierce, and you have to be the first with your foot in the door if you want to make an offer that has a chance of being accepted.
Buying during a recession is not that different from buying any other time. Real estate prices may be slightly lower, but inventory is, too, and that means competition remains an ever-present barrier. Your real estate agent can give you more information and talk to you about the market in your area.