The United States is officially in a recession. The National Bureau of Economic Research (NBER) says that the plummeting economic output along with double-digit unemployment figures has pushed the country into a pandemic-driven economic downturn.
A recession could directly impact the prices of real estate. The Great Depression of 1929, for instance, forced housing prices to go on a nosedive.
If the cost of a home were to drop during an economic downturn, would you buy one? Before you make any financial decision, you should know the pros and cons of getting a house during these difficult times.
Advantages of Purchasing a House in a Recession
Property values tend to drop during an economic downturn. If you’re searching for a house, you’ll likely encounter the following scenarios:
- Banks and other financial institutional selling foreclosed homes
- Homeowners doing a short sale
- Home sellers who are okay with a lower asking price
The combination of foreclosures and decreasing pricing by home sellers provide aspiring homebuyers an excellent opportunity to score an affordable house in the current real estate market.
Apart from the dropping property prices, recessions tend to drive down mortgage rates. When you get a home loan during this period, you may come across lower-than-average rates. During these times of uncertainty, the national government wants to keep home sales afloat by making mortgages more affordable for would-be homebuyers.
Possible Drawbacks of Getting a House during a Recession
Although there may be many affordable homes for sale, not all of them are a fantastic deal. Some properties require extensive repairs. The remodeling and repair costs could drain your wallet.
Additionally, banks are less inclined to lend money during times of uncertainty. If you’re working in industries hit by the economic recession, obtaining a loan approval might get difficult. Financial institutions aren’t keen on lending money to borrowers holding a job that won’t be there the following day.
Tips for Recession House Hunters
If you’re in the market for a home and have a stable job in a recession-resistant industry, you could consider searching for a property during the downturn. Take note of these suggestions when house hunting:
- Perform a Title Search on the Home You Want – Sellers in a financial bind might attempt to unload their homes as quickly as possible. These properties, however, may have liens that require payment. Before buying a house, make sure that you conduct a thorough title search.
- Stay Away from Bidding Wars – Participating in bidding wars is a complete waste of time and money. Shopping in a buyer’s market is all about landing an excellent deal. Outbidding other buyers won’t help you enjoy a great price. So, avoid a bidding war by setting and sticking to a price limit.
- Be Patient – Although buying a home for less money might be easy in a down market, the purchasing timeline can test your patience. The closing process during a recession can be lengthy.
Purchasing a house during an economic downturn may allow you to score great value on the home you want. If you want to buy a property, however, make sure your finances are in excellent shape.