Prospective homeowners are constantly concerned with the impact a recession has on real estate purchases. Recessions can have a great impact on overall real estate prices, mortgage rates, and loan values. In many cases, these effects are enough to draw away potential home buyers. On the other hand, a recessionary market often presents several opportunities to prospective homeowners like yourself. To understand the overall impact that market conditions have on your real estate purchase, read on to learn if buying a house during a recession is a good idea.
Impact On Mortgage Rates
One of the first steps in contemplating your home ownership choice is to consider the impact on mortgage rates. Believe it or not, recessionary conditions do not often have a negative impact on mortgage rates. Less home buyers are interested in purchasing when market conditions are down, often reducing the average mortgage rate. In the case of most recessions, mortgage rates are likely to be lower throughout recessionary periods. With these lower rates prospective homeowners obtain the benefit of both lower real estate prices, as well as lower interest rates. Consider the impact a recession has on mortgage rates when deciding on whether to make your real estate purchase.
Lower Real Estate Commissions
Purchasing a home during recessionary conditions can have a significant impact on real estate agent commissions. Real estate agent commissions are a major component of your property purchase. An average commission of 5% can cost you an additional $25,000 on a $500,000 home. With these commission rates being constant, it is integral to attempt to reduce fees whenever possible. In most scenarios, large, commercial real estate firms are unwilling to negotiate on agent commissions. Smaller real estate firms on the other hand, may be able to negotiate rates individually with buyers. These firms have fewer layers of bureaucracy, and are therefore often able to negotiate agent rates. If firms refuse to negotiate commissions with you, find a real estate agency that will. As mentioned earlier, there are more properties on the market during a recession, leaving you with increased buying opportunities.
Increased Buyer Leverage
When you purchase a home during a recession, you often have increased buyer leverage. As mentioned earlier, less home buyers are interested in purchasing property during a recession. With less buyers interested, homes sit on the market for longer, properties steady decline in value, and less competition exists. In most real estate scenarios, this leaves buyers with increased bargaining power. As a prospective homeowner, you may be able to negotiate a lower purchase price, mitigate closing costs, or leverage unique add-ons. For example, some homeowners have been able to negotiate home furnishings or even the continuance of maintenance services. In contemplation of buying property with real estate agents during a recession, consider your increased buying leverage.
Faster Purchase Turnaround
In many real estate scenarios, recessionary conditions lead to faster purchase turnaround. Unfortunately, during a recession, many properties go up for sale due to financial difficulties. Homeowners are unable to make payments on their second, or summer homes, and selling properties may be a last-ditch effort before encountering foreclosure. Owners would rather lose their current stake in equity, as opposed to encountering the financial hardships associate with property foreclosure. In these scenarios, current owners are more willing to quickly accept property offers. In expansionary periods, property-owners may want to wait to field more prospective buyers before accepting any offers. As soon as deals are accepted, current owners will immediately move out of properties to alleviate their ownership and tax liabilities. Because of this, overall real estate purchase and ownership turnaround is largely expedited. If you are considering a real estate investment during a recession, consider how it often leads to a faster purchase turnaround.
Dynamic Market Conditions
While many prospective homeowners are wary of purchasing property during a recession, market conditions are constantly dynamic. Historically, recessions typically only last periods of eleven months. When markets turn to expansionary periods, financing institutions may be overwhelmed, and current homeowners may be asking more for their current properties. With market conditions constantly shifting, it is best to leverage recessionary periods if you are able to. Once a recession strikes, many current property-owners are anxious to sell their homes at whatever price and claim the immediate cash value. Consider the impact dynamic economic conditions have on home purchasing during recessionary periods.
There are several factors to assess prior to purchasing real estate during a recession. First, you need to consider that recessions have on real estate mortgage rates. Be aware that recessionary conditions often allows you to negotiate lower commissions, while simultaneously providing you with increased buyer power. At the same time, market recessions often lead to quicker purchase turnarounds on prospective properties. Furthermore, market conditions are consistently dynamic, making recessionary periods only brief. Consider the points mentioned above to learn if buying a house during a recession is a good idea.