Source: Forbes —
Key takeaways
- We may not currently be in a recession, but we are experiencing some atypical circumstances in our economy, especially the housing market.
- There are several reasons to consider buying a home during recessions – the two main reasons are less competition and lower prices.
- There are also several potential drawbacks, like sky-high interest rates, a floor on pricing decreases and potential income changes if the U.S. does officially slide into a recession.
When we talk about personal finance, we often like to think in blanket rules. We like these mental shortcuts and standardized answers because they present seemingly simple solutions.
But in reality, a rule of thumb can be wrong a large percentage of the time. For example, you can’t answer the question, ‘Should you buy a house during a recession?’ with a clearcut yes or no. So much of the answer is highly variable depending on your location, job security and what happens in the near future, which is something no one can accurately predict.
That said, there are some helpful ways to think about whether buying a home during a recession is right for you, given your unique circumstances.
Are we in a recession?
As of yet, the National Bureau of Economic Research (NBER) has not announced a recession, though they typically wait until long after the fact to declare the start and end dates of such economic events.
We do know that the NBER looks at the following factors in concert to determine if the economy is in a bad enough spot to officially declare a recession:
- Unemployment
- Non-farm jobs data
- Industrial price index (IPI)
- Retail sales
- Real personal income less transfers (PILT)
- GDP
While GDP was down in Q1 and Q2 of 2022, it went back up during Q3 2022. Unemployment numbers are officially back down to pre-pandemic levels, sitting at 3.7% as of November 2022. November’s retail sales numbers revealed a 0.6% month-over-month decrease, but they were up 6.5% year over year. While the Industrial Production Index has stalled since April 2022, it hasn’t taken a nosedive.
None of the numbers look all that bad, but since inflation is high and we’re still dealing with strange economic circumstances brought on by the pandemic and geopolitical conflict, a lot of people still feel like there’s something off with the economy – so much so that we’re pulling out all variety of recessionary monikers like ‘white collar recession,’ ‘Patagonia vest recession,’ and now, ‘Richcession.’
Pros of buying a house during a recession
Some of the pros of buying a house during the coming months, whether we get the recession label or not, include:
- Potential decrease in home prices.
- Lower likelihood of getting into a bidding war.
- Ability to refinance in the future with lower interest rates.
