Pros and cons of buying a home during recession (Podcast)

August 15, 2022 - 3 min read

Is it smart to buy a house during a recession?

Whenever someone mentions the word ‘recession,’ most people’s minds go straight back to 2008 and the Great Recession. Home values crashed and the job market cratered.

However, those dramatic conditions were specific to the factors of that recession. By definition, a recession is simply two consecutive quarters where the country’s gross domestic product (GDP) declines.

The Great Recession “started in housing and filtered out,” mortgage expert Shivani Peterson explains. “Many times, most Americans don’t even feel a recession … but people get really nervous.”

Peterson explored whether it’s a good idea to buy a home if the U.S. enters a recession on a recent episode of The Mortgage Reports Podcast. Here’s what she had to say.

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How a recession could impact home buyers

Inflation is running at 40-year highs and economic growth has slowed, fueling widespread recession speculation. Many borrowers wonder if it’s a bad time to invest in real estate with the possibility of a recession on the horizon.

Peterson says that’s “counterintuitive,” because if the value of the dollar falls, it has less buying power. Real estate, on the other hand, is generally still growing in value. “We’re seeing a lot of savvy investors move their money from liquid savings into real estate because that’s an asset that’s appreciating,” she explained.

It’s also important to note that buying a house isn’t a generalized decision. Rather, it’s a personal one that’s specific to your financial situation.

What to consider before buying a house (recession or not)

Peterson outlines three things to weigh when home buying during a recession:

  • Housing values: Are home values rising or falling where you want to buy?
  • Your job stability: Do you have enough income and job stability to comfortably afford ongoing home loan payments?
  • Your long-term plans: Will the home you’re considering meet your needs for at least three to five years?

The pace of home value growth is expected to slow from the historical highs we’ve experienced over the last 18 months. But that doesn’t mean home prices will fall. Rather, it means the rate at which they’re growing will retreat to normal levels — around 5%, according to CoreLogic.

Despite a possible recession, housing values are anticipated to keep rising because of the supply and demand imbalance, Peterson explains. “Five percent appreciation is a great return on investment, especially if you have to pay for a place to live regardless,” she said.

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Is housing recession-proof?

The Great Recession of 2008 was driven by the housing market. Weak underwriting and low-quality lending caused a bubble and subsequent crash.

“It’s a misconception to believe every recession comes with depleted home values. Each recession has unique causes and effects, and can impact various industries differently.”

Conversely, the last U.S. recession happened when the world went into a Covid-19 lockdown in 2020. Housing then boomed in the aftermath, with demand elevated, interest rates at historic lows, and people no longer tethered to living where they work. Unlike during the Great Recession, homeowners during the Covid recession actually saw their home values skyrocket.

The bottom line is that it’s a misconception to believe every recession comes with depleted home values. Each recession has unique causes and effects, and can impact various industries differently.

If something dire does happen, like you lose your job and have trouble making ends meet, “odds are, you can sell your home for a decent profit and live off of that money for a while,” said Perterson. “Homes are not going to be underwater anytime soon. Homeowners are sitting on more equity than ever before, so that could be your nest egg to help you in an emergency.”

Advice for borrowers

While you can’t control the path the economy takes, you can make the best decision for your household with the information available to you now, Peterson advises. Perhaps most important is making sure you can afford the upfront costs and monthly payments if you decide to buy.

“Owning a home in a price range you can comfortably afford is a smart strategy, whether or not we’re in a recession,” Peterson adds.

If you’re ready, reach out to a lender or real estate professional to take the first step on your home buying journey.

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Paul Centopani
Authored By: Paul Centopani
The Mortgage Reports Editor
Paul Centopani is a writer and editor who started covering the lending and housing markets in 2018. Previous to joining The Mortgage Reports, he was a reporter for National Mortgage News. Paul grew up in Connecticut, graduated from Binghamton University and now lives in Chicago after a decade in New York and the D.C. area.