Is Buying a House During a Recession a Good Idea?
Last Updated on June 27, 2022 by Luke Feldbrugge
Fear that a recession is around the corner is causing potential home buyers to question whether buying a house during a recession is a good idea. Some experts believe a recession is more likely as the U.S. battles to curb inflation. Would-be home buyers should understand that buying a home during a downturn brings pros and cons.
Are We Headed for a Recession?
First, are we headed for a recession? Mark Zandi, the chief economist at Moody’s Analytics, believes that recession risks are “uncomfortably high.” In an interview with CNN, he said that while the recession risks keep rising, he believes that the U.S. will be able to make its way through the current challenges without actually suffering an economic downturn.
That is not to say it won’t be a challenging time ahead. Zandi believes consumers need to buckle up and predicts it will be an extremely uncomfortable second half of 2022.
Still, these economic fundamentals are in pretty good shape:
- Balance sheet
- Household debt
- Corporate leverage
- Financial systems strength
Good enough shape to at least help us navigate through this rough spot without a downturn.
Pros of Buying a House During a Recession
The upside of a recession is home prices would likely decrease. Zandi believes that “significantly overvalued” markets could see home prices discount by up to 20% if a recession does hit the U.S. economy.
Zandi lists the following as regional housing markets that will be hardest hit:
- Boise, ID
- Idaho Falls, ID
- Coeur d’Alene, ID
- Tampa Bay, FL
- Jacksonville, FL
- Lakeland, FL
- Atlanta, GA
- Fort Collins, CO
- Greeley, CO
- Denver, CO
- Colorado Springs, CO
- Clarksville, TN
- Greensboro, NC
- Charlotte, NC
- Las Vegas, NV
- Sherman, TX
- Longview, WA
- Charleston, SC
- Albany, NY
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Cons of Buying a House During a Recession
How would a recession negatively impact the housing market? Fannie Mae expects a meaningful slowdown in home sales for the second and third quarters of 2022, followed by a softening in construction activity and a significant deceleration in-home price growth.
Borrowing money during a recession can be difficult. Prior recessions have taught us that banks tend to tighten lending criteria:
- Increase minimum credit score requirements
- Require higher down payments
- Stop offering certain types of loans altogether
Borrowers need to be honest about how they plan to finance a home purchase and if it’s affordable. If you think job security will be an issue over the coming months, it may be wise to pull back on financing a home.
It helps if you’re confident you can make mortgage payments if you decide on buying a house during a recession.
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