Buying a new home during a recession is a bad idea, right? While that thought may be in your head, you’re still looking up mortgage rates and seeing how low they are and wondering if you should take the risk and buy a new home. While there is no simple answer as to whether to buy or not, there are a few things you should consider before taking the plunge or waiting.
How a Recession Affects Real Estate
Recessions usually result in lower industrial output, lower spending, higher unemployment, and increases in bankruptcies. These occurrences affect the housing markets and result in more foreclosures, lower- home sales volume, and declining property value. One positive through all of this is the decline in mortgage interest rates.
It’s important to check 2021 mortgage rates to get a good deal, but you’ll be happy to find that there are record low-interest rates across the board. On average, mortgage interest rates are between 2.6-2.9% on a 30-year term loan which buyers can take advantage of.
Positive of Buying a Home in 2021
Less Buying Competition
An economic downturn results in fewer people selling their homes for two reasons: a low return on their investments and a market unwilling (or unable) to purchase. Depending on the home you want, and where you shop, that means there are fewer rivals that want to outbid you. There is less urgency in a recession to pounce on a property immediately. You’ll have more time to think about your buying decision and shop around for the perfect fit.
Lower Interest Rates
As mentioned, buying a home during a recession means paying less in interest rates. The Federal Reserve puts pressure on banks and lenders to lower interest rates on loans to increase credit availability for companies and consumers and encourage investments. A lower interest rate means spending less money on your home long-term.
Lower Home Prices (Maybe)
Due to supply and demand, homes usually sell for less in a recession or economic downturn, but that isn’t always the case. Since fewer people are putting their homes on the market, some homes will sell more than average because investors are still looking to buy up properties. It depends on your area, but your homes or condos will likely sell for more if you live in the city. In the suburbs, they may sell for less.
Negatives of Buying a Home in 2021
In a good economy, lenders tend to give out loans more readily, but in a recession, banks will need a lot of coercing when it comes to lending out money. Lenders will respond with greater caution and may turn you away if your credit score isn’t high enough. Banks may also increase down payment requirements or expect a significant amount of assets to cover a potential debt crisis that may occur if you lose your job or spot payment.
Difficulty Selling Current Home (Maybe)
The difficulty of home selling and buying depends on which state you focus on because middle American is seeing a giant uptick in home buying and selling. Since home buyers are spending more time in their homes, they may sell in the city and move to the suburbs. Ultimately, if you want to sell your home and succeed, you need to live in a rural or small area with lots of nature. While they’ll sell for more, city homes may take a longer time to find a buyer.
To Buy or Not to Buy?
As the economy shows slow signs of recovery, now may be the best time to buy a home, but it depends on your financial situation. Many economists suggest we’ll see a bounce back in demand for housing in 2021. If you’re a new homeowner that doesn’t have to sell a previous property, you could benefit significantly from the low-interest rates and vacant city condos.