What happens to the housing market in a recession?
We’ve all heard the term “recession” used when referring to a country’s economy. And while, by definition, it’s indicative of a country’s economy scaling back, there are many, many more implications when a recession actually occurs. So, what is a recession actually? And what does it mean for you, purchasing a home, and the broader housing market?
What is a recession?
According to the White House, a recession is defined as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” In simple terms? A recession is when the money “changing hands” in an economy decreases significantly. And a recession can affect much more than simply the rate at which goods and services are being purchased. When an official recession hits, there’s often notable damage to the job market, unemployment rates, the housing market, and much, more more.
Ok, but what happens to the housing market specifically during a recession?
Typically, this means that demand for housing decreases, along with the number of actual buyers in the market. Why? Because the environment is less than certain, people are taking less risks, and often, the money simply isn’t there the way it was before.
So is it a good idea to purchase a home during a recession?
Well, that all depends on you and your current situation. When a recession hits (and housing prices and demand go down), purchasing a home could be a great opportunity to get more house with less competition. Likewise, the Fed typically lowers interest rates during a recession, making it cheaper to purchase a home in the long run. So, if you have the financial stability to be able to make that major of a purchase during a recession, it might be worth your while.
What should I look out for when purchasing a home in a recession?
A great deal and something that’s realistic for you. Because demand tends to cool during recessions, there is an increase in the amount of time that homes sit on the market. This can be prime time for you to negotiate, get a better deal on a house, have certain fixes made as a condition to purchase, and more. But while a recession can be a great time to purchase a house, you’ll still want to make sure that it’s a great time for you. Make sure you’re purchasing a home that you can comfortably afford, that you have your down payment ready to go, and that you’re prepared to handle any upkeep/repairs.
Recessions can be a rough time when it comes to selling homes. But as a buyer, this can be one of the optimal times to purchase your new house. Not only can it mean greater inventory to choose from and lower interest rates, it can also mean a much less competitive buying process. Always remember to check in with your trusted real estate agent and lender to find out more about your own personal situation, and see if purchasing a home is right for you in any circumstance.
