Is a Recession a Good Time to Buy a Home?

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Point of Interest

A recession offers several advantages to homebuyers who are in a financial position to purchase, including lower prices, better interest rates and more housing selection — but there are potential drawbacks when buying a home in a recession, too.

A recession can be a financially difficult time for a lot of people, giving them a different perspective on major purchases — like buying houses.

For some, a recession might present a unique and advantageous time to buy a house. They may be asking, “Should I buy a house now?” Others may see a recession as a neon stop sign. If you’re financially prepared to handle the market swing, are working in a recession-proof industry or expect the recession to be short-lived, you may have an opportunity to buy a home under favorable conditions.

What is a recession?

While there is no singly accepted definition of a recession, there are generally clear signs that a recession is on the horizon. The National Bureau of Economic Research defines a recession as “…a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales.”

Movements that normally capture a recession at a glance are a rise in unemployment rate, a drop in the stock market, and a struggling housing market.

Advantages of buying a home during a recession

  1. Lower home prices — Cash-strapped homeowners may want to sell or get out from under their homes, which will increase supply. Most buyers will also postpone major purchases due to market uncertainty, which will decrease demand. These two factors working together should significantly lower the home prices, giving buyers the chance to snag some bargains.
  2. Better borrowing rates  The government may use the Federal Reserve to try and stimulate buying by lowering interest rates. The Fed lowers the rate that banks charge other banks to borrow money, which generally trickles down to lower borrowing rates for mortgage loans.
  3. More selection — As more homes hit the market and more potential buyers hesitate to move forward, the housing supply will increase. If you’re looking for something specific, you’ll likely have plenty of options to choose from during your sales search.
  4. New home build incentives — Buyers looking for a new home build may be offered builder incentives during a recession. These might come in the form of interest assistance, lower closing costs or free upgrades on the home.

Disadvantages of buying a home during a recession

  1. Uncertain economic future — It’s tough to predict when the country will make its way out of the recession, and if you’re not prepared to weather the storm for an extended period of time, you may want to consider holding off.
  2. Tougher time securing financing — Lenders are aware of what is going on with the economy. You may have trouble securing a loan unless you’re able to show that the recession will have little effect on you. Buyers without a ton of cash for a down payment may struggle to get approved.

Tips for buying a house during a recession

  1. Ensure you have a stable income — You’ll have a hard time getting loan approval without a steady income and will also struggle to keep up with your payments.
  2. Know your limits — Home prices are dropping, but that does not mean you should go outside your budget or your means to buy more house than you need. Know what your limits are and stick to them.
  3. Be prepared to move quickly — Some investors may look at the recession as an opportunity to pick up rental properties and other investments. These buyers generally pay cash, which means they’ll have a leg up over you. A cash purchase can close in a few weeks, whereas a traditional mortgage sale may take months. If you find a house you want, be prepared to move quickly.

The final word

Buying a home during a recession should only be done if you are in a strong enough financial position to do so. Remember, the recession may last longer than what the expert forecasts predict, so make sure you’re in a strong financial position to weather an extended storm. If you’re confident with your financial position, buying a home during a recession can offer you a lot of benefits you won’t see during a normal economy.

Jason Lee

Personal Finance Contributor

Jason Lee is a seasoned copywriter with a passion for writing about banking, tech, personal growth, and personal finance. As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skill set with the rest of the world.