Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Pros And Cons Of Buying A House During A Recession
Oct 30, 2022
Image: Unsplash/Aubrey Odom-Mabey
A recession might feel like the worst time to invest in a new property. Home prices can rise and fall at any point in time. But it can also be the best time to get a great deal. If you are confused as to whether to buy a house during a recession, worry not! In this article, we will discuss the pros and cons of buying a house during a recession and everything in between.
What Is Recession?
A recession is a phase of temporary downfall in the economy during which the different activities related to trade and industry are affected. It is mainly identified when there’s a negative growth in two successive quarters.
Does Recession Have An Effect On House Prices?
Yes, a recession has an adverse effect on house prices leading to or causing a huge depression in it. Poor economic conditions mean the potential homebuyers don’t have enough disposable income to purchase a home.
See: Top Investors Advice To Prepare For The Next Decade
When there’s a drop in demand for properties, home prices also drop, and so does the income from real estate. However, the recession might cause a rise or fall in real estate prices, but volatility can take any direction.
The Pros Of Buying A House During a Recession
Purchasing a house during a recession might not sound like the best deal, but there are many pros related to it. Here are some of the definite benefits:
Lower Prices: Most people tend to save during this period, so there will be fewer homebuyers, which means the properties will remain in the market for a long time. The sellers might drop their prices so that their properties can get sold at the earliest. In this scenario, you might be able to save a lot of money and get a home within your designated budget.
Seller Concessions: If the property has been there in the market for a longer time, the seller might agree to pay the closing costs. The closing costs which you can save on include appraisal fees, title insurance, and much more.
Lower Mortgage Interest Rates: It is common that interest rates on a mortgage get lowered during this period. Many banks offer lower rates, so you have to pay less interest for the home in the long run. Purchasing a new home during this time can provide significant savings, mainly depending on the mortgage rate pattern.
The Cons Of Buying A House During a Recession
There are various downsides as well when it comes to buying a new property in the middle of a recession, here are some of them:
Job Uncertainty: During typical recessions, unemployment rates may rise and that can increase the possibility of losing your job. It is imperative that you consider your job security as you will have to pay the mortgage.
Banks Might Not Lend Money: The economy can take a toll on anyone’s job, and banks know this pretty well. So, lenders are less likely to provide mortgages to the public in this economic environment to avoid foreclosure. Even when you’ve followed all the tips for successful mortgage application, it might get rejected.
Difficulty In Selling Old Home: If you want to sell your current home to fund your purchase of a new one during the recession, it can be a problem. You might get less money than expected considering dipping housing prices, or worse your house might remain unsold for a longer duration. The situation can vary depending on the location.
Which Expenses Can You Come Across After Buying A New Home?
There are different expenses that you come across as a homeowner, one of them being routine repairs. Investing in a home warranty will help you in this case and save you from paying any extra money in this period. All you will need to do is pay a yearly premium for their services.
Krupesh, founder of HomeWarratyReviews says, “With the US on the brink of recession, it is essential for homeowners to be prepared with emergency funds for various needs such as house repairs, taxes, maintenance etc”.
Other expenses that you can come across as a new homebuyer can be mortgage and insurance. So, you should be careful enough to calculate the recurring expenses and act accordingly.
Conclusion
Buying a house during a recession can be difficult but not impossible.To prepare for the future, as a new home buyer, you should begin by doing your research. There are various pros and cons of buying a home during a recession that you must consider. This way, you can make the right decision and settle down on the best property within the budget.
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