December 11, 2024

For those who are prepared, economic turmoil can present an opportunity.
Advertising Disclosure
The economy is in dire shape, many fear we’re already in a recession, and home prices are still sky-high. But none of that means you should automatically give up on your dreams of buying a home.
Homebuyers are facing a tough market this year. Mortgage rates increased by more than 2 percentage points in the first six months of 2022, pushing the monthly payment on a median-priced home up by nearly 50% — to a whopping $2,514. Other economic indicators, including high inflation, a bear market for investors and the prospect of a possible recession, have people jittery as well.
When we think of a recession and the housing market, the 2008 bust might come to mind. Home prices dropped, mortgage payments on adjustable-rate mortgages soared, and millions of homeowners went into foreclosure. Understandably, potential buyers today may worry that buying during an economic downturn doesn’t make sense.
But should you walk away from a home purchase altogether? Maybe not.
“I think a recession can be a good time to buy,” says Melissa Cohn, regional vice president at William Raveis Mortgage. After all, she says, when you find the right house at the right price, it’s always a good time to buy.
Not all recessions lead to a collapse in the housing market. In fact, most experts agree that today’s market is unlikely to end in a Great Recession-style crash. A recession might even open up more opportunities for buyers who are well-prepared and have the financial resources.
For the past two years, it’s been a seller’s market. Thanks to record low inventory, home prices have seen year-over-year double-digit growth, and bidding wars have been the norm, with buyers paying above asking price just to have a prayer of securing a home. Waiving contingencies, such as home inspections and appraisals, has also become a commonplace tactic used to make offers more attractive to sellers.
During a recession, however, home prices usually decrease as demand slows. This opens up the possibility of buying a home at a more affordable price than we’ve seen during the past two years.
“We’re seeing some of this right now,” says Thomas Parrish, head of retail lending product management at BMO Harris Bank. “You’re starting to see home prices start to moderate in some markets.”
A recession means that economic activity has slowed enough for the Federal Reserve to try to stimulate economic activity by reducing the federal funds rate, or the interest rate banks charge each other for overnight loans.
This rate directly impacts the interest charged on everything from credit cards and personal loans to adjustable-rate mortgages and indirectly affects the interest charged on fixed-rate mortgages. Basically, mortgage rates will shift lower during a recession, and this could increase your buying power.
However, most experts will caution against tying your homebuying decision to interest rates. If the right opportunity presents itself to buy the dream home you can afford at a higher rate, take it. You always have the option of refinancing your mortgage at a lower rate later on. As Cohn points out: “You marry the house, date the rate.”
Competition for available homes has been so fierce that buyers have had to move fast. The typical home was selling in 15 days on average this past spring, with some buyers placing offers the same day the home was listed.
As the housing market cools and more potential buyers step away from the market, some much-needed inventory will become available. There will also, unfortunately, be homeowners who for financial reasons have to sell their homes, adding even more supply to a market that is still well below normal levels.
The increased supply means buyers will have more options to choose from, and will probably have more time to make sure the house is the right fit “before someone else snaps it up,” says Cohn.

Whether the economy is in a recession or not, buying a home takes time and patience. Being prepared will help you take advantage when the right moment comes along.
Make sure you are in a good financial position before jumping into a home purchase, says Parrish. You should have a steady household income and a decent sense of job security. Ideally, you have a good credit score too. And you should be aware of all the costs of owning a home, including taxes, home insurance and long-term maintenance.
If you are not financially stable, have poor credit, don’t have enough for a down payment or have concerns about your job security, it may be best to hold off on buying a home. Take the time to work on improving your position so you’re ready when the next opportunity arises.

You want to know exactly how much house you can afford. Go over your finances and review your expenses. Determine how much you can set aside for a down payment. While a 20% down payment is considered ideal, in 2021 the median down payment was 13%. Other expenses to take into consideration are closing costs and potential repairs to the new home.
You want to have some “rainy-day” money too, says Dottie Herman, vice chair of Douglas Elliman Real Estate in New York. An emergency fund comes in handy in case of unexpected job loss, home repairs or medical expenses that may pop up.
After factoring all of this in, determine how much you can comfortably spend on a monthly mortgage payment. Once you’ve set your budget, stick to it.
“Know what you can go up to and what you can afford,” Herman says. “Be prepared to walk away if it’s over what you planned.”
You always want to find the best rate and terms for your mortgage. Mortgage lenders will offer different products and interest rates, so shop around before deciding who to go with. Look at mortgage bankers, brokers, credit unions and online lenders to get a good idea of the types of loans and interest rates available.
Consider different loan types as well, Parrish says. The most common type of mortgage in America is the 30-year fixed-rate loan, but it’s not always the option with the lowest interest rate. Adjustable-rate mortgages, for example, typically have a much lower rate that you can lock in for 5, 7 or 10 years, and could make a home purchase more affordable.
Once you’ve selected a lender, it’s important to get a pre-approval letter for when you want to make an offer on a house. This means you’ve submitted all your required financial documents to the lender and have qualified to obtain a mortgage loan up to a maximum amount.
Even though the market isn’t as frenetic as it has been, notes Herman, you still may run up against another bidder. Being pre-approved can make your offer stand out to the seller.

While you can certainly go through the homebuying process on your own, working with a good real estate agent who is familiar with the area can provide advantages.
A knowledgeable agent will have a good sense of home values in the area, can tell you if the list price is fair, and will be able to find out other useful information, such as whether you are facing competition for a specific home or whether the owner needs to sell quickly. In some cases, realtors can even help identify potential problems in the home that may require repair and help negotiate the price if it’s a major issue.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
  Like Article   Add a Comment
Simple ways to make, save, and grow your money daily:
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Every week our podcasts bring you lively money discussions that will give you a few laughs along with advice that will make you richer.
Money with Stacy Johnson
Listen/Subscribe
Some of our favorite stories for you to read next.
Join our free newsletter subscribers building wealth and destroying debt:
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
Do Not Sell My Personal Information
© 2022 Money Talks News. All Rights Reserved.
‭1 (833) 669-8557 | 1732 1st Ave #26661, New York, NY 10128

Advertising Disclosure: This site may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.
Help us produce more money-saving articles and videos by subscribing to a membership.
Get Started
Help us produce more money-saving articles and videos by subscribing to a membership.
Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.
Please enable JavaScript to view comments.
Join happy subscribers and sign up for our free newsletter! You’ll get:
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

source

About Author