Homeownership represents all that the American dream stands for. Since the residential property is the most significant financial investment for many, timing can be everything. As a buyer, you might wonder, “Should I buy a house now or wait for a recession?”
What Is a Recession, Really?
At least two months of data are necessary to determine a sustained economic decline. The critical data pieces that define a recession are:
- The stock market
- Employment levels
- Income levels
- Gross domestic product
- Consumer spending
How do these factors affect the decision of when to buy a home? Let’s take a look at the data.
What Is GDP?
The Gross Domestic Product is a measure of the total monetary value of goods and services a country produces for sale at a given time. GDP is an excellent economic measure because it means people are working and selling goods. Such activity correlates to higher employment, more income among the population, higher spending, and booming stocks.
According to the Bureau of Economic Analysis, in 2022, we experienced a two-quarters of GDP decline. Specifically, -1.4% and -0.6% for the first and second quarters. Then GDP rebounded with positive growth of +3.2% in the third quarter. Market fluctuation can make home buying confusing for prospective homebuyers, because it can drive rates, so it’s essential to consider it.
What Does the Unemployment Rate Indicate?
The U.S. Bureau of Labor Statistics reports the current unemployment rate at an all-time low of 3.5%. Unprecedented circumstances seem to have created an unusual market where the unemployment rate is low even as GDP wavers and the stock market dips.
One criticism of the unemployment rate is that the figure only counts those actively looking for a job over four weeks. This number does not fully factor in underemployed workers or unemployed people who quit looking for work.
High unemployment means lower expected income, which could mean less demand for home buying. Lower unemployment, then, would mean more competition for home buying.
Is a Recession Coming?
No one ever knows for sure when a recession will happen. Jobs, GDP, the stock market, and spending are valuable data but cannot always account for other notable events. New technological elements and the rise of remote work also present an entirely new landscape for the economy.
One thing is for sure: economic growth has slowed. Experts remain cautiously optimistic that a recession will be momentary and light.
During a recession, however, houses tend to sit on the market longer – so you may have more negotiating power.
When Will the Housing Market Crash?
A housing market crash can be challenging for some homebuyers but ideal for others.
In contrast to periods of expansion, recessions lead to fewer bidding wars. Less financially stable buyers hold back and save money before entering the housing market.
Crashes often occur when interest rates are high, making home purchases prohibitive for those without a decent down payment and good credit score.
The lack of competition means those ready to buy can take advantage of sellers doing everything possible to close the deal. Sellers are less likely to insist on selling a home as-is. They may also agree to contingencies, lower prices, and assist with fees and closing costs.
Tighter Lender Restrictions
Lenders work to protect themselves from risk. Since recessions usually mean increased layoffs and underemployed households, financiers tighten requirements to ensure loans are given only to borrowers who will not default.
Gaining loan approval often requires a good credit score or a higher down payment during a recession. Lenders will scrutinize employment and debt-to-income ratio more closely as well. One’s economic situation will often dictate the timing of buying a home.
When Should I Buy a House?
Consumers should buy a home during a recession if qualified and willing to wait for prices to drop. Of course, buyers don’t need to know for sure when the housing market will crash to buy a home.
The only rule for buying a home is that a purchaser should proceed when ready. Property is a solid and stable investment. A recession often allows a purchaser to buy low and reap significant gains in valuation once the economy rebounds.
What Should You Consider if You Want To Purchase a House With Bad Credit?
As noted, a housing market crash often happens during a recession because of fewer available buyers. A buyer’s market allows approved shoppers to get the property they want at a desirable price.
On the other hand, tighter restrictions that brokers institute can make qualifying for a mortgage more difficult. Also, higher interest rates can put a payment out of reach of your monthly budget.
While these factors present challenges, rates rise and fall. Many people decide to buy now and refinance when rates decrease to obtain a more reasonable payment.
Should You Buy Rental Property During a Housing Market Crash?
Rental properties can be a fantastic income stream during a recession. The factors that make buying a primary residence more difficult can make a rental a perfect setup.
Fewer home buyers equate to more renters. Some families find themselves in foreclosure. Also, home prices will only decrease to a certain level as builders slow down construction. Consequently, the demand in the rental market increases prices and occupancy rates.
This means a healthy income from renters could more than cover the cost of a mortgage. A buyer can acquire an investment property and make money doing it, making rental properties an excellent proposition for buyers ready to take advantage.
How Can Associates Home Loan Help?
The right time to buy a home is when you are ready, regardless of what the market is doing. Florida residents, contact Associates Home Loan to find a mortgage that fits your situation. Even if you’re struggling to qualify, we have flexible options for subprime loans and hard money loans.
With over 30 years of experience, we have a track record of helping people buy the home or investment property of their dreams. We offer bad credit loans and many other mortgage options.
If you have questions or need guidance on the mortgage process, call our experts at 813-316-2006 or send us a message.