The different needs and circumstances of borrowers call for varied types of home loans. For…
The U.S. economy has weathered 11 recessions since the year 1945, most of them manifesting as stock market drops and a general hollowing out of consumer confidence. Another common trait they shared: a drop in home prices. Buying a home during a recession has often been a good idea. The current slowdown in the economy that the coronavirus pandemic has caused has produced a drop in home values, as well.
If you have been thinking of buying a home to take advantage of low prices, it can help to be aware of the pros and cons of making a move now.
Before you begin: be honest with yourself about your financial situation
Recessions don’t just cause home prices to drop; they also affect job stability and business viability. Whether you work for someone else or run your own business, it’s important to honestly gauge how dependable your income is likely to be in the current environment. No matter how great a bargain a home may be, a home purchase can quickly become a burden if the stability of your finances takes a nosedive. It’s only sensible to buy a home if you are completely sure that your income is stable.
The advantages of buying a home in a recession
Lower prices: During a recession, homeowners who need to sell tend to realize that there aren’t many buyers on the market capable of raising enough cash. They lower their prices for this reason. Other homeowners perform a short sale to get out of their mortgages, and banks put foreclosed homes on the market. As an example, during the Great Recession of 2008 home prices fell by a third, and foreclosures more than doubled. With similar trends in evidence during the current recession, you’re likely to get much more for your money than you would in normal times.
Mortgage rates tend to be more affordable: When a recession strikes, the federal government, in an attempt to encourage real estate buying, tends to lower mortgage lending rates. The Great Recession of 2008, for example, saw 30-year fixed-rate mortgages fall from 6.25 percent to 5.10 percent. On a $300,000 mortgage, a drop of this kind would translate into savings of about $200 on each monthly payment.
The downsides to buying a home during a recession
Not every home that is put on the market during a recession is a good deal. Some of the most affordable homes that come on the market during these times tend to be fixer-uppers — their families moved out a while ago, and these homes have been denied maintenance for months. Before you make a move, then, you need to make sure that you know how to tell a quality home apart from one that requires major, costly work.
Be alert to when you come across short sales or foreclosures
When the economy is in poor shape, it tends to make it hard for many families to pay their mortgages. When several homes in a neighborhood are foreclosed on, it tends to affect property values all over the neighborhood – such neighborhoods are considered unattractive. You need to consider the possibility that the value of your home purchase may not rise to normal levels for years.
Also, these homes are usually sold as-is, and may, as a result of prolonged vacancies and neglect, come with serious damage.
Make sure to perform a title search
Homebuyers looking for a great bargain during a recession need to remember to not cut corners. When you come by a home that you like and are serious about buying, it’s important to get your realtor to first set up a title search. A title search helps you make sure that there are no hidden issues in the home’s property title. For instance, a homeowner putting their home on the market at a bargain price may owe a large sum of money to a contractor who did work on the home. The contractor could file a mechanic’s lien on the home to make sure that they get paid before the home is sold. You wouldn’t want to discover such issues late into the process of buying.
Buying a home during a recession may be an attractive proposition for the money that it saves you, but it’s also important to be aware of the pitfalls that are often a part of the process. If you’re smart, do due diligence, shop around for a bargain on the mortgage, and make sure that you find a home that is good value, a recession can be the right time to buy a home.