What You Need to Know About Buying Real Estate in a Recession
COVID-19 has changed the lives of most Americans. As this crisis continues, it’s reasonable to assume that there will continue to be economic changes. A recession is possible, if not inevitable, and this may leave hopeful home buyers and real estate investors wondering what a recession means for them. If you are considering purchasing real estate in the next year or so, here are a few things to keep in mind in case of a recession.
Understanding How a Recession Will Impact Real Estate
Does thinking about a recession give you anxiety? That’s understandable given the financial impacts that a recession can have on individuals. You can use recession trackers provided by financial experts to determine when a recession might hit the U.S. economy and what sort of fallout to expect. As you look at these predictions and facts, also try to keep in mind that some recessions are much different than others.
Even though we’re currently in a recession, housing market impacts are likely to be less drastic than they were in 2008. The 2008 recession was caused by a floundering real estate market, whereas this recession was caused by the COVID-19 pandemic. What this means for buyers and investors is that housing prices may not fall. Because real estate trends can vary for different areas, savvy investors and buyers should also keep track of local housing prices. This will provide a more accurate picture of how a recession or other economic concerns are impacting your local market (e.g., Boston home sale prices have fallen nine percent since last year).
Financing a New Home or Investment Property
In addition to housing prices, home buyers also need to carefully weigh the pros and cons of purchasing real estate in the middle of a recession. While housing prices may not always fall during a recession, mortgage rates typically do decrease. The housing market plays a critical role in the national economy, so federal officials will typically lower interest rates on home loans in an effort to bring the country back out of a recession.
You should ask for home loan quotes from several lenders to make sure you receive the most competitive rate but also ask about your home loan options before you enter into a contract. First-time homebuyers and veterans may be able to take advantage of FHA or VA loans. If you’re considering filling out an FHA application, remember that while these loans do not require a stellar credit history, you will be required to pay mortgage insurance if you don’t put 20 percent down. Unfortunately, real estate investors will need to pursue a different type of loan in order to finance investment properties. Loans for investment properties tend to come with significantly higher down payments and interest rates, even during a recession.
Finding and Buying Real Estate During a Recession
If you plan on buying investment properties during a recession, you should carefully consider the risks of doing so as well. One of the main drawbacks to investing in real estate during a recession has to do with foreclosures. The increase of foreclosed properties can result in lower home prices for investors, but many of these foreclosures require extensive repairs. So if you plan on flipping or renting out your new property, it may be a good idea to estimate repair costs before you extend a final offer.
So, whether you are an investor or want to reside in the home, make sure that a thorough home inspection is completed before your offer is finalized. If the inspection turns up any problems, you can use online tools to help give you a rough estimate of how much those repairs will cost.
Understanding the difference between major and minor repairs can also help buyers and investors make more practical decisions. Major repairs, like electrical issues, may not be worth the extra hassle and cost, even if you can buy at a better price. On the other hand, you can typically DIY minor home repairs, so don’t let these issues scare you away from getting a deal on your dream home.
Don’t forget to plan for your move well ahead of time. You can start the organizing and decluttering process before closing on your home. Once your purchase if finalized, hire professional movers to do all the heavy lifting. Luna’s Family Moving has more than 12 years of experience, and the company’s reliable movers can handle all your relocation needs.
A recession can cause some serious anxiety, but it doesn’t have to put you off from a real estate purchase. In fact, buying a home during a recession can be a sound financial move, so long as you carefully consider all the potential risks and rewards involved. It’s also wise to work with reliable mortgage and real estate professionals, recession or not.
Photo Credit: Rawpixel