Buying A Home During A Recession

What is A Recession?

A recession is a period in which an economy experiences a decline in success and performance for two consecutive quarters. Economic growth is measured by gross domestic product. A recession is a normal part of an economic cycle. Economic recession has both negative and positive ways in affecting the real estate industry. During this economic downturn, there are many risks in buying and selling homes as demand for homes slows down causing prices to decline. As the number of buyers in the market decreases, home values decrease as well. Prices of homes drop as there are less buyers competing in the market. A recession can be felt throughout a whole economy from goods and services to employment and sthe stock market. There are many things that both sellers and buyers can do to stay afloat during this trying time.

Pros of Buying A Home During A Recession

1. More Opportunities for Buyers

As mentioned, there are less buyers during a recession and more inventory as a recession puts people in a financially unstable situation. This means there is less competition and more opportunities for those who can still afford to buy a new home. 

1. Lower Prices

With more inventory sitting and less buyers, sellers no longer receive multiple offers on their property which drives the price up. Since people are not fighting over their properties, sellers drop prices of homes.

1. Lower Interest Rates

Later in the recession, the Federal Reserve would lower interest rates in hopes of initiating movement in the economy. Lowered interest rates make it more feasible for borrowers to get loans.

Cons of Buying A Home During A Recession

1. Economic Uncertainty

Economic health starts to decay during a recession. Unemployment rates start shooting up as many companies are at risk of cutting back on employees. People lose their jobs and other conditions put people in an unstable financial condition.

1. Higher Rates

A recession also leads mortgage rates to increase due to higher interest rates although the two are directly tied to one another. This in turn results in a lowered demand for homes in the market.

1. Challenge for Sellers

While a recession may be beneficial for buyers with lowered rates and prices, sellers may have a harder time with selling homes. Since there are less buyers in the market, sellers lower the prices when selling homes which might be less than what they would want. Some sellers may also take their homes off the market to wait for the economy to get back on its feet. 

1. Strict Lending Requirements

Due to economic uncertainty during recession, lenders implement stricter lending requirements for buyers to protect their profits. Stricter lending requirements lessen the probability of borrowers not being able to accomplish their loans. 

Strategy for Buyers

1. Go Over Your Finances

Before making any final decisions of buying a home during a recession, make sure you are in a good financial position. This includes assessing job security, steady income, and having a good credit score. Having a low credit score or concerns with job security may be a sign that it is not the best time to buy a house. 

1. Set Aside Emergency Funds

It is also helpful if you have emergency funds set aside in case of unexpected unemployment, medical emergency funds, home repairs, and the like. 

1. Set A Budget

In setting a budget, you will have to consider different costs of owning a home such as taxes, home insurance, and maintenance. Once you have set a budget, you will have to stick to it.

1.  Work With A Knowledgeable Real Estate Agent

While you can buy a home on your own, working with a real estate agent puts you at an advantage. Real estate agents know the market, giving them a good sense of home values in the area. They can advise you on which prices are fair for the property and identify potential issues with the property such as repairs and updates needed. Agents can also help negotiate on the price of the property.

Strategy for Sellers

Selling a house during a recession requires a lot of preparation and at this point in the economic cycle, you will have to sell as fast as you can. There are a number of things you can do in preparation of listing your property on the market. Here are some strategies for sellers who plan on selling homes during a recession:

1. Reach More People to Sell

It is understood that there are less buyers and more sellers or homes to sell during a recession. To reach more potential buyers, you  may want to increase your reach by putting more effort on marketing strategies. 

1. Know What Your Buyers Want

During a recession, buyers usually look for homes that are ready to move into. Buyers are looking to buy properties that do not require any great deal of repairs and renovations that may cost too much.

1. Staging the Property
   Less buyers make for a more competitive market. You will want to make your home look as presentable as you can before listing it on the market to capture more attention from potential buyers. These may be done by doing inexpensive cosmetic fixes such as painting, light fixtures, flooring, and such. Basically, you will want to make your house the best house in the market.

1. Get An Inspection

You will also have to attend to any fixes that the house may need before listing by getting a home inspection. Getting fixes done prior to listing is one less thing to worry about later on as buyers may get an inspection done themselves on the property. 

1. Pricing Your Home

In pricing your property, you will have to be realistic. Recessions usually bring sellers to lower the prices of their homes as there are less people fighting over properties during this time. You will have to take into account closing costs, 

1. Find A Good Real Estate Agent

Working with a real estate agent not only works well for buyers but sellers as well. Working with a real estate agent will help you review comps and identify what listing price is best for your property. An agent that knows their way around the market ensures success in selling your home.

VTB Financing

    A VTB or Vendor Take-Back mortgage benefits both seller who is able to sell their property and buyer who may be able to buy above their financing limit. This type of financing offers favourable terms where the seller would provide a loan for the buyer in order to sell the property. Also known as Seller Take-Back mortgage, this type of financing offers favorable terms for the buyer.

Strategy for Investors 

    Even during an economic downturn, people are still looking for places to reside in. Real estate investors would earn steady income from rental properties. During a recession, renovation costs are lower. The best strategy here is to buy distressed properties and fix them up to rent out. As long as you are able to find and keep good tenants, rental properties may provide good income during a recession.