Despite evidence to the contrary, more than half of Americans (56%) think the country is in a recession. Many individuals feel squeezed by rising living expenses and inflation, even though the economy is expanding. Many are anxious about the 2024 presidential election as well because they think the result would affect people's economic fate. 

The threat of a recession influences Americans' home-buying decisions. There are theories that the housing bubble bursts during a downturn, sending prices down. They think it would also result in a rise in inventory and a fall in interest rates, lowering the cost of loans. However, economic realities don't always support these beliefs. Even if there is a recession in the US in 2024, the home market may not respond as consumers would like. Whether someone is left in an unbearable housing situation or can afford to buy a home might experience consequences.

This post is neither pushing for a recession nor denying the existence of one. It will simply cover the factors, techniques, benefits, and downsides of potential purchasers entering the market during a downturn.

What Happens In The Real Estate Market During A Recession?

The idea that recessions produce buyer's markets has some validity. When property values decline, more opportunities arise for purchasers seeking to purchase homes at lower prices. But overall, the housing market contracts. While some buyers postpone their plans to look for a property, some homeowners wait to enter the market until the uncertain phase is over.

Since there are fewer properties to look at, active buyers may find that their home hunt takes longer. You might have to wait months to discover your dream house if you have certain housing requirements, such as wanting to reside in a nice community. 

The Federal Reserve often cuts interest rates when the housing market weakens. This is an additional benefit for purchasers. It implies that they can buy a bigger house and that their loans will be less expensive. With a combination of low prices and reduced loan rates, homes that were previously out of the reach of buyers may now be affordable. 

Lower borrowing rates, though, may not always be without consequences. Some homeowners have been holding off on raising their property values until interest rates decline. Buyers can contribute more to their principal when they pay the banks less.

Even when the borrowing rates are low, the housing market may still slow down considerably more during a recession. To put it another way, there's no assurance that a recession will result in an abundance of reasonably priced homes available for low prices. There are simply too many moving parts, which would require a perfect storm for that to happen.

Advantages Of Buying A Home During Recession

Buying a home during a recession is said to provide numerous benefits. Here are some of the factors motivating prospective purchasers to wait for the next year or two for the economy to weaken.

Reduced Cost Of Homes 

During a recession, home prices typically decline. But supply and demand dynamics have more to do with this than macroeconomic changes. People are better able to purchase homes when employment is high. As a result, the supply of homes decreases and home prices rise.

Fewer people can buy homes during recessions since they are frequently linked to lower income and layoffs. Homeowners who want to accommodate more purchasers in their neighborhood cut their prices when the quantity of bidders in the market declines.

You might benefit from decreased property prices during the recession if you keep your existing job and income.

Lower Competitions

Recessions typically cause purchasers to leave the market, changing the balance of power in the housing market from sellers to buyers. There are more purchasers than available homes in a seller's market. This implies that some homeowners may have a short time frame until they are under contract, experience bidding wars, and receive many offers.

Many purchasers exit the market during recessions because they can't afford to buy a property. To draw the remaining customers to their houses, sellers are forced to reduce their prices. Additionally, the suppliers could be more accommodating.

For prospective purchasers, this change in power can be advantageous. When bidding on houses, they might be forceful because they are aware that sellers have fewer options.

Affordable Interest Rates

When the housing market begins to deteriorate, the Federal Reserve takes prompt action. This government agency will change interest rates to make borrowing cheaper to discourage a serious economic downturn.

This adjustment aims to enable additional homebuyers who may have been discouraged from entering the market by exorbitant interest rates or inflated property values. 

Since banks want more people to take out loans, buyers who purchase during a recession may be eligible for attractive mortgage rates. For present homeowners looking to refinance their mortgages, this might be advantageous.

Disadvantages Of Buying A Home During Recession

There are several serious drawbacks to delaying home ownership, despite the widespread belief that one can take advantage of an impending recession to obtain excellent housing prices.

Here are some reasons why you might want to act now rather than waiting for a fall in the economy.

Uncertainty In The Economy

When planning to purchase during a recession, one of the main presumptions held by prospective buyers is that they won't be impacted. Nobody can predict which industries will be most negatively impacted by the impending recession, but most will suffer some sort of direct or indirect setback.

Many people might lose their jobs, which would require them to use their savings as a down payment for other expenses in life. 

If you're unemployed, you probably won't be able to benefit from a housing market collapse, especially since mortgage lenders consider job history when granting loans.

Possibility Of Additional Price Drops

During the crisis, most prospective buyers desire to heed the advice of "buy low, sell high," which is one of the most popular investing proverbs. To increase their wealth as their investments gain value, they hope for a housing market collapse that will drive down home prices.

Still, there's always a chance that house values will decline considerably more. The recession is growing worse, so in the years after you move in, you might see a decline in the value of your house.

In addition to being a lost opportunity as a result of not waiting for prices to decrease further, selling may be difficult if your mortgage exceeds the worth of your house. You might have to stay in your home longer than you would like.

Stricter Lending Requirements

The mere fact that the Federal Reserve lowers interest rates does not guarantee that obtaining a mortgage will be simpler. Lenders that authorize loans face increased risk during recessions.

A buyer can close on a home, experience job loss, and then fall behind on mortgage payments.

The bank could eventually foreclose on the property, causing the organization to lose money. 

Purchasing a home may prove to be more difficult during a recession. To approve your loan, fewer banks may be ready to engage with you and may impose additional fees and closing costs. It is possible that you will not be able to benefit from the desired lower mortgage rates.

Not The Best Option For Buyers Who Want To Sell

Existing homeowners will experience stress during a recession, but first-time homebuyers may be thrilled to get into the market. They might be concerned that if their house values dropped below the amount of their existing mortgages, they wouldn't be able to sell.

Additionally, if home values are low, they can decide not to sell, which would lower their profits. 

Homeowners under stress may cause the local market to stall.

There won't be as many house moves, and many homeowners will be anxious to sell their current residence before acquiring a new one. Sellers who can't maintain their properties due to layoffs or other economic uncertainties may be compelled to enter the market. 

What You Need To Consider Before Buying During A Recession

The easiest method to determine if you should purchase a home during a recession is to assess your financial circumstances and make decisions accordingly.

Refrain from giving in to fear-mongering and hold off on purchasing because someone says it's the greatest time to make one. Inhale deeply and consider these many aspects as you weigh your options.

Individual Financial Security

Analyze your credit score, emergency funds, and down payment right now. These elements will influence the likelihood that lenders will approve your loan, regardless of the state of the economy.

Avoid purchasing or making a lesser down payment if doing so will make you "house rich but cash poor," which indicates you don't have a lot of money saved up.

Consider the worst-case scenarios that could happen during or after a recession. You might find it difficult to obtain work at a time when many other Americans need employment and to make your mortgage payments if you lose your job and your partner if you have one, loses theirs. 

After you purchase a home, think about how many months you could survive without a job. Recognize that unanticipated emergencies could deplete your money.

Although no one likes to think about the worst-case scenario, a weak economy could make it inevitable.

Potential For Long-Term Investment

Purchasing a home you will love to live in is crucial, but you should also consider its resale potential.

Consider the market demand for particular properties as well as any potential issues with properties that would make them difficult to sell. Purchasing an inexpensive home, for instance, could result in a lower mortgage payment but a lower eventual resale value.

If the neighborhood isn't appealing or the house is too tiny for the area, selling could be more difficult when the time comes. 

Consider homes in the same way that you would an investment. Verify that the structures you tour will likely be in demand even in a down economy. When the time comes, moving will be simpler as a result.

Market Analysis

Market research is still necessary whether you purchase during a recession or a prosperous period of the economy. Certain markets may be impacted by macroeconomic trends such as mortgage rates, but other factors may cause purchases to slow down or increase. 

For instance, you might be surprised to learn how much of an impact the weather has. Warm climates may deter customers in the summer, but in the winter, they become more appealing.

Sellers may be more amenable to negotiations in states prone to hurricanes to move before the start of storm season. 

Good news for buyers: the real estate market is slowing in various parts of the United States. Prices are growing, though, and there are still many competitive regions. To find out how much you should spend in the neighborhood and the property size of your choice, start monitoring trends in the median price of homes in your area.

How To Purchase A Home During A Recession

You can proceed with the acquisition procedure as soon as you determine the right time to become a homeowner. If you are buying a home during a recession, consider these steps:

Find The Right Real Estate Agent

An experienced realtor is your finest resource in an unpredictable real estate market.

Find a realtor with experience in recessions and understand how to maintain their competitive edge in trying times. They can assist you in locating homes that interest you, as well as striving to get past obstacles that the seller, listing agent, and mortgage broker may have put in your way.

Working with a reliable real estate agent helps achieve a smooth and seamless transaction, too.

And if you're looking for trusted real estate services, our team at RE/MAX Advanced Realty is ready to help!

With 8 years of average experience, our seasoned professionals can help you purchase your dream home, recession or not.

Obtain A Pre-Approved Mortgage

To gain more insight into the pre-approval procedure, talk to lenders. Pre-approval and pre-qualification mean quite different things. When you provide a mortgage lender with information regarding your debts, income, and savings, you are considered pre-qualified.

Once the lender verifies this information and determines how much they are willing to grant you, you are pre-approved.

Whether purchasing a home during a downturn or in a competitive market, getting pre-approved is crucial. It demonstrates to sellers that funding is available and increases the likelihood that the sale will close. If the buyer cannot arrange finance, the seller must relist the property. Their preparations to move are delayed, and their concern about selling grows.  

Additionally, pre-approval can help you get past financial obstacles and expedite the loan procedure. Getting pre-approved is worthwhile so you may proceed confidently with the loan application procedure.

Anticipate A Prolonged Purchase Process

One of your most valuable assets when purchasing during a recession is patience. If there are fewer residences available, it could take longer to find a place to live. Prepare to look for a house for weeks or even months.

You may find that some sellers are stubborn, which will try your patience even more, even if home prices are typically declining and sellers are more eager to deal with buyers.

It's possible that they won't want to give in, give up closing expenses, or negotiate at the pace that the market requires. 

Finally, since lenders are being more cautious, the closing procedure may potentially take longer. They would like to take their time examining loan applications and conducting due diligence during difficult economic times.

Prepare to offer additional financial health documentation to your lender to demonstrate your credibility as a borrower.

But if you wind up falling in love with a house, all of your hard work can be worthwhile.

Think About Your Financial Circumstances Before Purchasing

The answer to the question: "Should I wait for a recession or buy a house now?" is intricate and contingent upon each buyer's financial options.

To take advantage of a stable mortgage and discover a property they love before the market flips, some people might find it advantageous to enter the housing market now. Perhaps some other people will be fortunate enough to acquire a reasonably priced home during a recession.

Speaking with a real estate agent and seeking advice from a personal finance counselor are the initial stages of purchasing a home. To know whether you can buy a home or not, these two experts can examine your down payment, monthly income, debts, existing mortgage rates, and the state of the housing market.

They could also help you in determining a fair budget for the area. Don't jump into the market merely because of economic trends; your objective is to locate a house you love, not just one you can afford.

Want to know if now's the right time to buy a home? Talk to one of our experts at RE/MAX Advanced Realty so we can assist you!