So far, 2020 has not been anything like we expected. In fact, it has been a year unlike any other that we have seen in our lives. In these unprecedented times of global uncertainty, many have put off plans and reevaluated their needs as they grapple with the new reality that we are living in. For those who were planning to buy a home in 2020 or early 2021, there are likely to be a lot of questions surfacing now in the face of the global health crisis. If you are one of the many Americans who are now questioning their decision to buy a home due to the recession this article should prove extremely helpful.
We will be discussing the pros and cons of buying a home and what it means to be buying a house during a recession.
Although we may be experiencing life in a completely new way these days, there is one thing that is not new. Since 1945, the U.S. has seen 12 recessions. For each of the 12 recessions, it took an average of 10 months for the economy to reach its lowest point. These recessions all have three major things in common: dropped stock prices, decreased consumer confidence, and favorable times for home buying. Surprised by the third item? Buying a house during a recession requires serious thought and preparation, but don’t rule it out as a smart investment.
And, how does that change (or not) when you are buying a house during a recession?
When weighing the pros and cons of buying a home during a recession, you will see that home values go down. As a home buyer, this can be a pro. If you have accurately assessed your own personal finances, and you are in a good stable place for purchasing, the low prices will make this an extremely advantageous time for you to purchase a home. You may find that you are able to offer less than asking price on some homes or that homeowners who can no longer support their mortgages are doing short sales.
As a home buyer, you may be focused on just how low the prices will go during a recession. Understandable. However, understanding how much you can afford before prices go back up is the real question. Regardless of how low prices are, you need to be able to pay your mortgage and ride out the downturn. If you cannot do that, a low-priced home is not as advantageous as you might like to believe it is.
In times of economic recession or otherwise, it is extremely important that you evaluate your own personal financial circumstances. For example, you will want to weigh factors such as job security when you are making any major life decision, much less buying a home during a recession. If you are secure in your field of work to the extent that you are able to predict then you may determine a recession is the best time for you to buy a home.
However, if your industry is precarious or your job is somewhat insecure in the face of recession, buying a home could create unnecessary financial hardship that will be very difficult or - in the most extreme cases - impossible to recover from financially.
Speaking of financial hardship, during a recession banks are selling foreclosed properties at higher rates than they would be if the economy were in good health. A prime example of the increase in foreclosures is the Great Recession of 2008. During that time frame, foreclosures more than doubled. You may even remember movements to resist foreclosures by local occupy groups. Reduced price and increased foreclosures are a result of recession and can be beneficial to you as someone looking to purchase a home.
As we have recently discussed in other articles, recessions also bring about decreased mortgage rates. Because mortgage rates are difficult to predict into the future and waiting can be a gamble, many home buyers are finding it advantageous to act now. Lower interest rates on mortgages make a tremendous difference when it comes to your monthly payments.
As you can see, there are many advantages of buying a home during a recession if you have assessed your own financial situation and you are in a suitable place to make a large investment. That said, it is important not to jump into a major decision without also weighing the cons.
When looking for homes during a recession, it is just as important as ever to understand what you are getting into with your investment. You may see homes that are now within your price range, but upon closer inspection they are not always a great deal for you. Always assess the necessary repairs when looking at homes for sale. Does the home you are looking at need some minor or cosmetic repairs? Or, does it need major refurbishing before it's habitable? What about repairs down the road? Are you likely to need a new heating system or a new roof? How does that play into your budget?
We have already mentioned that short sales and foreclosures can be seen in a certain light as a pro, however, there is reason to proceed with caution on these homes. Did you know that mortgage defaults actually impact a home’s value? Even nearby homes can be impacted by the foreclosures in terms of their own value.
Short sales refer to sales by the homeowner whereby the party sells the house for less than what they owe to avoid imminent foreclosure. A foreclosure happens when a lender seizes ownership of a house after non-payment. These homes can be attractive to buyers because they often sell below market value. Still, there are some considerations to be made when looking into purchasing a home that is short sale or has been foreclosed upon.
Among these issues is the fact that short sales involve more than one lender and as such can take longer to close. Additionally, homes that are foreclosed on may have been vacant for some time and can be severely damaged or in a state of disrepair. All of these are important factors to consider in the actual affordability of a home.
If you have weighed the pros and cons of buying a house during a recession, start your search - and research - at Homes & Land.