In theory, buying during a recession could enable borrowers to take advantage of lower home prices and lower interest. It might be the best time to buy. Might. But as we just talked about, you never know for sure when you're in a recession until after the fact.
During a traditional recession, the Fed will usually lower interest rates. This creates an incentive for people to spend money and stimulate the economy. It also typically leads to more affordable mortgage rates, which leads to more opportunity for homebuyers.
Buying a House as a Long-Term Investment
Property values can swing in the short term, but historically, they have increased over the long term. If you don't need to sell your home during the crash, it's often best to wait it out. The market typically recovers, and so will the value of your home.
According to C.A.R.'s monthly Consumer Housing Sentiment Index, in April 2023, 59% of consumers said it was a good time to sell, up from 55% the previous. Only about 25% feel it is a good time to buy a home, unchanged from last year.
A recession shouldn't mean an end to your dreams of real estate ownership. Potential buyers with cash flow and strong credit can take advantage of the decrease in competition and listing prices. Real estate investment, like any investment, comes with risk.
Is it a good idea to buy a home before a recession? Buying a home before a recession could add risk to your finances, especially if you are living within a tight budget. Mortgage rates have surpassed 6% with the national average at 6.7% this week, the highest since 2007, according to Freddie Mac (FMCC).
However, it is difficult to time the market. Therefore, you might buy a home at a great price, but the home you buy may be worth less before the recession ends. Risk of Foreclosure – During recessions job losses increase. If you lose your job or have a reduction in income you may not be able to afford the payment.
“The housing market is off to a good start this year, as consumers benefit from falling mortgage rates,” said NAR chief economist Lawrence Yun in the association's December pending home sales report. NAR forecasts that sales will rise by 13 percent in 2024.
Real estate experts predict a continued housing shortage, and because they expect high buyer demand to keep pushing home prices up, 2024 may be an ideal time to sell. Experts also anticipate a leveling out of 2023's elevated mortgage rates, expecting rates to eventually settle around 6% – 7% in the spring.
2023 is a balanced year for housing supply and demand. This is ideal for retail purchasers and rental property investors. No longer a “seller's” market. Rising interest rates raise the monthly mortgage payment, which reduces homebuyers and lowers property values.
Because a decline in disposable income affects prices, the prices of essentials, such as food and utilities, often stay the same. In contrast, things considered to be wants instead of needs, such as travel and entertainment, may be more likely to get cheaper.
A market crash would likely push prices down and make housing cheaper, but it would remain unaffordable for many if the crash was caused by a larger recession.
But bills—including your mortgage payment—will continue to come due, and you'll still be responsible for paying them. A mortgage lender may, however, agree to suspend or reduce your payments or hold off on foreclosure if you're experiencing a financial hardship.
The U.S. economy avoided the recession forecast for 2023. Experts now say a soft landing or mild recession is possible in 2024. These tips can help investors prepare for the unexpected.
S&P/Case-Shiller Home Price Indices: Home prices fell by 18.2% in November 2008 compared to November 2007 in 20 major metropolitan areas. This was the largest annual decline in the history of the index, which dates back to 1987. For the whole year of 2008, the index showed a decline of 15.3% compared to 2007.
Predictions for the 2024 real estate market
Despite anticipation for a more stable housing market, affordability remains a concern. Mortgage rates—while possibly cooling off—are also projected to stay elevated in 2024, which could be challenging for some Americans, especially first-time homebuyers.
Rising Mortgage Rates: Experts predict that mortgage rates will rise in the first half of 2024. The market might see a decline in the number of home buyers. Home Prices: Home prices are high and will most likely rise further or remain stable. The median home price will remain elevated in 2024.
Wall Street analysts are expecting earnings to rebound in the first half of 2024, projecting a 4.6% increase in S&P 500 earnings in the first quarter and another 9.4% growth in the second quarter.
The National Association of Realtors expects mortgage rates will average 6.8% in the first quarter of 2024, dropping to 6.6% in the second quarter, according to its latest Quarterly U.S. Economic Forecast. The trade association predicts that rates will continue to fall to 6.1% by the end of the year.
Experts have forecasted that mortgage rates will go down in 2024, but exactly when they'll start trending down depends on the economy and when the Federal Reserve starts lowering the federal funds rate.
Goldman said it expects 30-year mortgage rates will drop to 6.3% by the end of 2024, and fall slightly in 2025 to 6% as the Fed starts to cut interest rates. Previously, Goldman had expected the 30-year mortgage rate to be at 7.1% by the end of 2024 and at 6.6% by the end of 2025.
Do Interest Rates Rise or Fall in a Recession? Interest rates usually fall during a recession. Historically, the economy typically grows until interest rates are hiked to cool down price inflation and the soaring cost of living. Often, this results in a recession and a return to low interest rates to stimulate growth.
Recessions have plenty of negative consequences, but they can provide a necessary reset for the markets. Higher interest rates that often coincide with the early stages of a recession provide an advantage to savers, while lower interest rates moving out of a recession can benefit homebuyers.
The short answer is no. Banks cannot take your money without your permission, at least not legally. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per account holder, per bank. If the bank fails, you will return your money to the insured limit.
According to NBER data, the average U.S. recession lasted about 17 months in the period from 1854 to 2020. In the post-World War II period, from 1945 to 2020, the average recession lasted about 10 months.