When you think about the economy and how it is affecting people’s lives, one question that comes to mind is whether you should buy a house now or wait for the recession to pass. If you’re a first-time home buyer or if you’ve been waiting for the right time to take the plunge, there are a few things you should know about the housing market.
How long should I wait until the recession ends before buying a house?
The housing market is facing a major threat. Rising mortgage rates have made purchasing a home impossible for many Americans.
Several major banks have predicted that home prices will drop in the next year. Inflation has soared, and the Fed’s rate hikes have boosted the cost of borrowing. A steep decline in house prices could lead to a recession.
The Federal Reserve has been aggressively raising the benchmark interest rate. It has now pushed it to three-quarters of a percentage point. This is the third consecutive rate hike.
Inflation is also rising and the labor market is tight. These factors have caused a slowdown in home sales. As a result, fewer homes are being built, and demand for owner-occupied properties is falling.
Since this time last year, mortgage rates have tripled. Mortgage applications have fallen by more than 40 percent. If the Fed raises interest rates again, the demand for new homes will be diminished, which will tamp down the rise in house prices.
Home prices are still rising in some parts of the country, but the trend isn’t likely to continue. The price of a typical single-family home has gone from $413,800 in June to $389,500 in August.
Supply constraints mean there aren’t as many homes to compete for
Despite the fact that it’s been a while since we last saw a boom in the real estate market, it’s still hard to ignore the fact that the housing market is at an all-time high. The supply of new homes is in short supply, which has fueled a flurry of activity in the home buying and renting sectors. In the US, the median price of a new home has risen 15.5% year-over-year to $424,405. Considering that the average mortgage rate is still under 5%, consumers are still able to snare a piece of the pie.
There are several reasons for the surge in new homes. Large national companies target infill locations in constrained markets. The statewide government also mandates parking minimums, which forces developers to put valuable land to good use. These restrictions are limiting the size and quality of the homes being built.
The aforementioned shindig is best exemplified by the fact that nearly 27% of the nation’s inventory of new homes has yet to be started. This is despite the fact that in April the U.S. Census Bureau reported a five-month low in the number of new residential units constructed.
Having said that, a growing share of Americans are being left out in the cold. And, while the housing industry is one of the strongest sectors of the economy, it is certainly not without fault. While some homeowners have been able to take advantage of low rates and other incentives to spruce up their current abode, many more have been left out in the cold. With the housing market in short supply, consumers are resigned to the idea that owning a home is an exclusive club.
- First-time homebuyers
When it comes to purchasing a house, it can be hard to decide whether to buy now or wait for a recession to end. There are some advantages and disadvantages to both. However, the good news is that a recession offers an opportunity to buy a home at a bargain price.
First-time buyers are in a particularly strong position. Mortgage rates are low, and the government offers down payment assistance programs. The average first-time buyer will have a down payment of around 20 percent. If you have a steady income, you may be able to secure a great deal on a home.
Recessions usually bring lower interest rates and fewer buyers. This means more homes on the market, and lower prices. Plus, you may be able to negotiate more from sellers.
A recession is also a time when houses stay on the market longer. Sellers get nervous. They do not want to lose their leverage. And lenders are reluctant to approve mortgages, so they may drag out short sales.
- Down payment requirements
While many people feel that a recession is a bad time to buy a home, it’s actually a great opportunity. You may be able to find a home for a better price, and you won’t have to worry about foreclosures.
Although you may have to make a larger down payment, you should be able to finance a mortgage during a recession. Banks are more likely to approve loans during a downturn, and the interest rates on those loans may be lower.
If you’re looking to buy a house, you should check with a mortgage expert for guidance. They can offer you solid advice and priceless information.
Mortgage experts also know what kind of down payment you’ll need to qualify for a loan. For example, homes above $500k will require a down payment of at least 10 percent. Still, homes under $500,000 will require only 5 percent.
If you’re an older buyer, you may be able to take advantage of equity you’ve built up over the years. This will allow you to afford the payments on your home, and give you more time to build a nest egg.
Recessions affect housing prices, mortgage rates, and the real estate industry in general. A downturn can cause sellers to cut their listings. In addition, homeowners who must sell for financial reasons will add to the inventory. The increase in the supply of homes will mean more options for buyers.
- Practical considerations
When you are looking to buy a house, there are practical considerations to consider. You may need more money for a down payment or you might not be able to afford your monthly mortgage. However, these are not the only considerations you need to make when buying a home.
If you have a fixed-rate mortgage, you don’t have to worry about mortgage payments during a recession. If you are planning on selling your home in the future, you may be able to sell your home for less than you originally paid.
Home prices will probably fall during a recession. That’s not to say you can’t buy a house during a recession, though. But you should do your homework and understand that it’s not always the easiest time to buy a house.
In order to find a bargain, you should look for the best deals. For example, you might want to pay a bit more for a larger lot. Or you might be better off buying a corner lot on a quiet street.