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Forge Your Wealth is meant for education and entertainment and should not be used for financial advice.
I have constantly heard about the next recession in financial news. Some say the housing market may be affected. These are perfectly reasonable thoughts, but should you swing your decision on buying a house during a recession? In this post, we will discuss this.
Recessions Do Not Guarantee Anything Negative About The Housing Market
Many are still worried about housing thanks to the effects from the Great Recession of 2008. Relax, the Great Recession was an anomaly. The effect it had on the housing is not likely to be repeated, mostly because there is healthy supply and demand for houses. In fact, housing markets do not always turn down during a recession. Remember, many houses, including rental real estates are not recession-proof, nothing is. Buying a house during a recession may be the best idea you ever had or the worst.
Things To Consider Before Buying A House During A Recession
1) Location Location Location
Just because the US housing market is stellar does not mean every place is doing well. There are many cities that US citizens are leaving for the chance to get more affordable homes or lower taxes. You should learn everything you can about the area where you are buying a house or any other form of real estate. No real estate expertise is too expensive when you are considering buying during a potentially troubling time. And do note, I am not an expert in real estate or buying a house, do not use my advice as professional advice.
2) Can You Afford A House?
I know it sounds too motherly to ask you if you have everything covered, but if you are at all questioning whether you should buy a house, then questionable times may not be the best time to buy a home. It is not hard to get a home, me and the missus could get a home if we really wanted to, but with our current situation we elected that buying a home right not would be unwise.
Even if we put down a good down payment, we would still have to consider the extra expenses to buying a home. We could expect these to be thousands, maybe even over ten thousand extra. Right now, it would be somewhat unwise for us to get a house during a good time in the global economy, much less a questionable time. If you can look at these expenses and say “yeah, no problem” then you can buy a house. If not, maybe just wait.
3) Are You Going To Own For More Than 10 Years?
In a previous post I explained how you only have financial benefits from buying a house after 40 years. That is assuming that everything is steady. If everything was steady what is the purpose of this article? If you try to sell your home before truly gaining any equity, you will lose money. Even if the next recession has no effect on the house market, it will have an effect on peoples’ incomes. Some people may lose their job and then have to move and sell their home to get a new job. There will be fees in which will all but certainly overcome any gains you had if you sell the house in only a few years.
Housing values will require time to recover. Usually less than 10 years. Otherwise, you will have to sell you home for less than what you have paid for and you will lose more money on top of fees.
Pros Of Buying A House During A Recession
People want to sell homes, sometimes as quickly as they possibly can, meaning you will have a bit of negotiations in the initial costs.
If someone wants to get rid of something as soon as possible, they will have to sell for as low of a price as possible. Buyers will be more eager to get the house out of their hands if they did not plan for their house to lower in value quickly and will likely sell the house for a lower price.
Lower/No Closing Costs
When sellers want to sweeten the deal they may cover some of the closing costs usually covered by the buyer. This is usually associated with lower prices, but they cover the initial costs and not the mortgage itself,
Cons Of Buying A House During A Recession
Sold As Is
Usually when a house is being sold by the owner there are negotiations and they can cover some repairs. Instead, you could be purchasing the house from the bank. They will sell you the house as-is and if something is wrong with the property, you will have to pay for the repairs entirely.
More Difficult To Receive Financing
During a recession, banks are less likely to lend out money. Even people with impeccable credit scores may have issue borrowing money without collateral during a recession. It is likely you will have to put down a larger down payment for the property.
If you want to buy property during a recession because of lower prices note that you are not the only one with that idea. Many real estate investors will be searching for the next good buy and that can be intimidating, especially to first time real estate investors.
If there is competition for a property, the purchase is likely to be an auction. Try to set a maximum before participating in an auction. If you fight a number battle too long the investment will not be as good of a deal.
Buying any housing property is always a large venture. Buying a house during a recession may be more questionable, but it is also more opportunistic.
If you are new to buying a house whether for personal or investment purposes, you should do as much research as possible before the purchase, no advice nor knowledge should be unwanted. Buying a house during a recession may have risks, but it may be a good way to forge your wealth.