Whenever you think about mortgages, you probably imagine that you need a seriously exceptional credit…
After a decade or so of unprecedented gains, the stock market hit a major bump in the road in the first quarter of 2020. Uncertainty often occurs in the markets when health crises arise, and sometimes a recession is a possibility.
If you’re considering becoming a homeowner in the near future, you might be concerned that a downturn in the economy would make homeownership less attractive. If you’re thinking about putting off the purchase of a home, here are some things to consider.
Is your job stable?
Amid economic uncertainty and/or recession, the unemployment rate tends to rise. And one of the last situations you’d want to find yourself in is committing to a home purchase, then suddenly losing your job.
If you’re unsure about how your household finances might be affected by a change in your income, taking on the added expense of buying a home might be a risk not worth taking.
Is your money in the markets?
If you’re thinking of using money you have in the stock market as a down payment on a home, you stand to lose quite a bit if you sell off your positions right after a market crash. A 20-percent dip in the markets could take a $50,000 portfolio down to $40,000 very quickly.
Remember, the stock market started a steady recovery just after the end of the 2008 recession and had a great 10-year run. Your stock portfolio is likely to bounce back, and no investor wants to sell at the bottom of the market.
Mortgage rates are low.
Global uncertainty has led to a drop in mortgage rates after a couple of years of slow increases. On a 30-year loan, every half-point of interest equates to about a $50 difference in the monthly payment per $100,000 borrowed.
Almost any time rates drop suddenly, there’s a surge of refinancing that can cause rates to creep up because of demand. Once that demand wanes, rates tend to move downward again. But any mortgage professional will tell you that it’s almost impossible to “time the market” when it comes to mortgage rates.
Nobody knows where home prices are headed.
Home prices across the United States have risen rapidly over the past several years, and there has been buyer competition in markets where the inventory of homes for sale is low. Amid economic uncertainty (and social distancing), there’s a possibility that the number of homebuyers active in the market could fall.
Fewer active buyers could mean flattening home prices. But it could also mean that fewer sellers are willing to put their homes on the market, which would keep inventory down.
Home values don’t necessarily drop every time there’s an economic downturn. Also remember that the last recession was directly tied to real estate, which did cause a drop in home values. It’s different this time, as recent global economic uncertainty has nothing to do with a real estate “bubble.” Much like mortgage rates, it’s difficult to predict exactly what will happen with home prices.
While you’re waiting…
If you decide to take a wait-and-see approach toward buying a home amid economic uncertainty, there are some things you can do while you’re waiting.
For example, you could work on your credit. Check your FICO score, and maybe order a credit report if it seems low. Paying down debt and addressing any errors or old items on the report could help you boost your score. A higher credit score means a better chance of qualifying for a home loan, and, in many cases, a lower interest rate. HLP provides a Mortgage Score which calculates all of these items items from a very simple and intuitive dashboard for you.
If you’re pressing the pause button on home buying, you can also use the time to save more money for a down payment or build an emergency fund so that you won’t have to put unexpected expenses on a credit card.
Whether or not it’s a good time to buy a home is almost always a personal question. Does it feel like the right time for you? Still, there are some external factors that are practical to at least consider during times of economic uncertainty.