Is Buying a House During a Recession a Smart Move?

Buying a home in today’s housing market is what others might consider brave—or foolish—depending on whom you ask. 

If you want to buy a home, you cannot wait for the situation in the world to improve. The uncertainty shouldn’t prevent you from living your life and making the moves that make sense for you and your family. 

Even though there isn’t a recession right now, we are closing in on one. There are some unusual things going on, especially in the real estate market, with mortgage rates currently on a small decline.

Is buying a house during a recession a smart move or not? Will mortgage rates drop further, or could they rise? Should you explore the market now or wait until we are in the clear? 

Unfortunately, this is the decision you must make, but this article will help you make an informed decision and ultimately do what’s best for you! 

Table of Contents

    Recession and The Housing Market 

    Due to high inflation, the Federal Reserve had to take some aggressive steps, which has economists worried about the coming recession. Currently, house prices are soaring, as are mortgage rates, which has caused a lot of people to put a foot on the brake.

    In a recession, home prices decrease, but the unemployment rate rises, and people become unwilling to finance new homes. With the weaker buyer demand and lower home prices, over time, interest in buying a home increases again. 

    The Worst Economy Ever?

    Is Buying a House During a Recession a Smart Move?

    For example, during the great depression, gross domestic product (GDP) fell 29% from 1929 to 1933 while unemployment was at an all-time high of 25%. The great recession we had in 2007–2008 cannot be compared to that crisis from the 1930s or today. But each of these shows the devastating effects a recession can have on people, their buying power, and the economy.

    But should you buy a home in a recession when the prices are lower or sit it out? Let’s explore this further.

    Pros of Buying a Real Estate During a Recession

    woman holding a key and giving it to a man

    Buying a home in a recession isn’t black and white. There are some advantages to buying a house during an economic downturn. 

    Less Competition

    During the recession, a lot of people lose their jobs and simply have a hard time figuring out what to do to stay afloat. Unfortunately, not everyone goes through the recession unscathed. Some are financially worse off, and they might have planned to buy a home, but they no longer do. 

    Unfortunately, this is the harsh reality we live in. Those people who are financially free and have a system in place that allows them to minimize the outside factors might become interested in looking for a new home, regardless of the housing prices. Becoming financially free has become harder, but not impossible.

    With the lifestyle banking system, you can take out loans against your whole life insurance policy while the cash value builds up. We’ll explain everything later…

    Back to the housing market!

    The housing market changes during the recession, and those who do want to buy a home will find fewer offers but also less competition. Therefore, they will avoid potential bidding wars and not overpay for a home.

    Lower Housing Prices 

    Due to economic uncertainty, home sales drop, with fewer people actually buying or selling a house. From home sellers’ perspectives, they will no longer experience high demand, which gives them an opportunity to wait for the best offer. Instead, they might become inclined to sell a home for a smaller price considering decreased demand.

    Some homeowners want to sell their homes despite the reduced home prices and the housing market crash. Therefore, if you are looking to buy a house, there will be fewer buyers active on the market, and you can find some gems that might have been sitting on the market longer.

    To know which decision to make and what you can expect in today’s market, you must be familiar with what has happened in the past few years. With some basic economic knowledge, the facts listed below might help you make the right call. 

    Here are some statistics on what the US market has been through in the last few (turbulent) years: 

    Useful Facts About The US Real Estate Market From 2019 To Today
    Home prices have continued to rise: According to the National Association of Realtors, the median existing-home price for all housing types in February 2023 was $385,200, up 20.8% from February 2022.
    Low inventory is still a challenge: The number of homes for sale in February 2023 was down 16.6% compared to the same time last year, which has continued to drive up prices and make it challenging for buyers to find homes.
    Interest rates remain low: As of April 2023, the average interest rate for a 30-year fixed mortgage was 3.7%, which is lower than the 4.28% average in January 2019. This has made buying a home more affordable for many people.
    The pandemic had a significant impact: The pandemic caused a dip in home sales in 2020, but the market rebounded quickly in 2021 and 2022. Additionally, the pandemic has changed what buyers are looking for in a home, with a greater emphasis on space for remote work and outdoor areas.
    Home flipping is on the rise: In 2022, home flipping reached a 15-year high, with over 90,000 single-family homes and condos flipped, according to ATTOM Data Solutions. But home flippers are making less money than they did in the past, which shows that the market is getting more competitive.

    Lower Interest Rates and Mortgage Rates

    We’ve already mentioned the actions the Federal Reserve takes to keep the market as stable as possible. Usually, they will lower interest rates to stimulate growth and spending. As home prices fall, interest rates follow, and this can be a great time for someone to invest in a new home.

    One can never tell how long the recession will last. Therefore, don’t be surprised if you see rising interest rates only a few months in. For home buyers who are actively looking for a new place to live, monitoring interest rates is just as important as browsing through homes.

    Cons of Buying a Home During a Recession

    image of a cellphone

    Although buying a house during a recession may seem like a good idea after everything we’ve listed, we need to consider the cons and the other economic indicators that prevent people from buying a home when the recession hits.

    Fewer Homes on the Market

    While there’s less competition in the housing market, potential buyers might be looking at the reduced offer. The reason for it is that home prices drop, and homeowners withdraw their houses from the market, hoping to get a better deal later. The real estate industry is ever-changing, and we can see those fluctuations during the housing recession.

    While a lot of buyers tend to save money rather than invest it, a lot of sellers don’t want their home values to drop, so they would rather wait, hoping to get more cash and the best deal. This isn’t necessarily a bad idea, but for someone looking to buy a house, the options shrink without them knowing it.

    Economic Uncertainty

    Although the housing market does open up during an economic downturn, this is a time of economic unpredictability, and people become hesitant. Consumer spending goes down, whereas unemployment rates rise, and there’s difficulty selling anything on a large scale.

    For a housing recession to officially start, it takes two consecutive quarters of negative growth. Although we are not in a recession right now, the financial situation on the global level is difficult, which influences our decision.

    Stricter Lending Policies

    Some other factors aren’t correlated as much with the real estate market as they are with the economic activity around the country. One of those factors is lending money.

    When buying a home during a recession, lenders may make mortgages harder to get to protect their businesses and lower the chance that a borrower won’t be able to repay a loan.

    This makes it harder for you to buy a house, especially if you are looking for a lender: banks, credit unions, 401(k) plans, etc.

    However, this isn’t a problem you’d encounter with a whole life insurance policy. The insurance company allows you to get a loan against the cash value of your policy because you aren’t obliged to pay it back. What do we mean?

    Well, the amount of money you borrow is available for the insurance company to take in case you don’t pay it back. They will take the money from your cash value. This makes it so they are safer and more willing to grant loans to people who want to buy a home, recession or not.

    What’s the next step?

    The housing market crash is sometimes inevitable, but it always takes some shape or form. Home prices may rise or fall, and the recession might not be the best time to explore real estate markets due to low employment and the lack of a good deal as many withdraw their homes from the market.

    On the other hand, the recession might be the perfect time to go to mortgage lenders and look for homes. With lower interest rates, it might be easier to take out a loan and pay it off.

    House prices are lower, there’s not much competition in the housing market, and you can sustain a purchase as large as this one. The people who want to sell their homes might get nervous when their houses sit on the market longer, and they could sell them for lower prices.

    Get Your Finances in Order

    bills on a table

    To minimize the effects of the real estate market crash or the financial crisis, you don’t have to do complex economic research. With the rate hikes, you need to figure out what you are doing with your finances before you move to the next step.

    Therefore, keep track of your expenses and write down everything you buy. This will help you understand where your money goes, and once you know that, you will be able to make some modifications.

    Lifestyle Banking Can Free You

    What if we told you that you could pay yourself back for every purchase that you made? That would create some excess money for you to use—the cash you wouldn’t have otherwise. 

    This is all possible with the lifestyle banking system, which is based on the whole life insurance policy and borrowing against the cash value in your life insurance policy.

    You can use the money you borrow to invest in things like buying a house during a recession, paying off your mortgage, going on a trip, or paying off your debt. All of this is possible while you pay your premiums. As you use the money from loans to grow richer, your cash value faces uninterrupted growth, bringing you even more money and allowing for bigger future loans and bigger investments. 

    And this is why such a system is effective, especially in times of financial crisis. However, this is the system that you will be using daily, and it requires a powerful mindset and a change in how you perceive money.