On nearly every media outlet, there’s an ongoing discussion about when the next recession will be. As we’re already approaching the end of 2019, some wonder if the next economic downturn will be in 2020. While we’re in a period of economic strength, for the most part, there are some troubling indicators, such as the ongoing trade war with China and a slowdown of the GDP.
The Federal Reserve has also been decreasing interest rates to counter trade tension and other headwinds. Around 38% of economists, academics, and policymakers think there’s a possibility of a recession beginning in 2020, according to the National Association for Business Economics.
If a recession were to occur, how would it broadly impact the real estate market and, more specifically buyers and sellers?
How Will the Next Recession Affect the Housing Market?
During the Great Recession in 2008, there was a complete crash of the housing market. That was likely due to the fact that the housing bubble essentially caused that crash. Many homeowners found themselves underwater on their mortgages and began defaulting in the face of a stock market crash and huge layoffs.
It’s not likely during the next economic downturn that the housing market will crash, or at least not in a way that’s anywhere close to that level. Housing prices only dropped in one of the past four recession. Lax lending practices were a big reason the housing market was decimated during the last recession, and there are regulations in place to prevent that now, more than ten years later.
Should You Buy a Home During a Recession?
If you are thinking about buying a new home anytime soon, doing so in a recession may actually offer you advantages. For example, markets surrounded by the factors of an economic downturn are often described as a buyer’s market.
When there’s a recession, homeowners may be more likely to sell because they can’t afford their mortgage, or they need liquidity out of their home. This makes them more motivated to sell, and you may find lower prices or better deals. Selling their home for a lower price may also be the only way to avoid foreclosure.
Of course, there can be downsides of buying a home during a recession. For one, it’s tougher to get financing in an economically challenging environment. Lending requirements are more rigorous, and you may be expected to have a higher down payment. Also, when there’s a recession, investors tend to come out in droves to find great deals, and they may be all-cash buyers, so you’re competing against that.
If you’re considering buying during a recession you need to not only have strong nerves, but you need to be confident you’re not going to face a layoff, and that you’re going to continue to be able to pay your mortgage.
If you are strong in your financial standing, and you’re looking for a great deal, a recession can be a good time to buy a home, but you need to think long and hard about whether that’s the right option and if you’re willing to take that kind of risk.
If you’d like to find a partner in your real estate journey, contact EffectiveAgents® today.