Is a Recession a Good Time to Buy a House?

How Do Recessions Affect Real Estate Markets?

During a recession, you might expect to see increases in rates of foreclosure, lower home-sale volume and houses for sale staying on the market for longer periods of time before they sell. Home prices may also fall, but that's not always the case.

Here's a look at the home price changes over the past six recessions in the U.S.:

Source: Cotality

Home prices are more likely to fall in areas with a greater supply of homes, primarily because the supply is already outpacing demand. In areas with lower inventory, however, prices may be less inclined to budge.

Pros of Buying a House During a Recession

Depending on your situation, there may be several benefits to buying a home in the middle of a recession. Here are just a few examples:

• Lower interest rates: The 10-year Treasury note yield, which acts as a benchmark for mortgage rates, typically falls leading up to a recession, which can lead to lower interest rates on home loans. What's more, lenders may offer lower interest rates to help improve demand.
• Less competition: Economic downturns typically mean fewer people have the means to buy a home. A market with fewer buyers can mean less urgency to pounce on a desirable property immediately for fear another buyer will get it before you can submit an offer. A buyer's market can also give you an edge in negotiations with sellers.
• Potential for lower home prices: While home prices don't always go down during a recession, some areas may offer more savings opportunities than others. Additionally, lower demand often translates to longer selling cycles. If you find a motivated seller, you may be able to negotiate a lower sales price.

Learn more:Ways to Deal With High Mortgage Rates

Cons of Buying a House During a Recession

While there are some clear advantages to buying during a recession, it's also important to consider the potential drawbacks. Here's what to keep in mind:

• Tighter lending requirements: Rising unemployment and overall lower household income often accompany recessions, which, in turn, create more financial uncertainty for lenders. As a result, lenders typically tighten their lending standards by increasing credit score and down payment requirements.
• Less inventory: With fewer people able to buy a home, many existing homeowners are likely to stay put rather than try to relocate. This means you may have a more limited selection of homes to choose from. Depending on what you're looking for, you may not be able to find the perfect fit.
• Risk of job loss: Even if you're confident about your job situation, a recession may still impact your job or your income. If you move into a new home and lose your job shortly afterward, you may be forced to sell or risk foreclosure.
• Potential difficulty selling your current home: If you need to sell your current house in order to buy a new one, the pricing trends that benefit you as a buyer may work against you as a seller. Depending on your local housing market, you may need to be prepared for lowball bids or longer selling cycles.

Should You Buy a House During a Recession?

As you consider the advantages and disadvantages of buying real estate during a recession, it's important to understand how they may apply to your unique situation. With that said, here are some general scenarios where it could make sense to pull the trigger:

• You have a stable income and secure employment.
• Your credit score is in excellent shape.
• You have sufficient emergency savings after the down payment and closing costs.
• Home prices in your area have dropped significantly.
• Interest rates have declined.
• Your expected housing costs are roughly equal to or less than what you're currently paying.
• You've found a motivated seller willing to negotiate.

That said, it may not make sense in the following situations:

• Your job or income is unstable or at risk.
• You have little to no emergency savings.
• Your credit score needs some work.
• Home values in your area haven't fallen by much.
• You're stretching your budget to afford the home.
• You're already managing significant debt or financial stress.

Tips for Buying a House During a Recession

Before moving forward, it's important to get your finances in order and make sure that buying a home is the right decision for you. Here are some tips to help you prepare:

• Improve your credit. Taking steps to increase your credit score can help improve your chances of getting approved and also potentially qualify for more favorable loan terms.
• Build up savings. You may face higher down payment requirements, and you'll also need to cover your closing costs. In addition to that, you'll want a robust emergency fund just in case things go sideways and your income is impacted.
• Have a stable source of income. While nothing is guaranteed, it's crucial that you consider buying a home only if you feel confident that your job and income are generally secure.
• Hire an experienced real estate agent. A good real estate agent can help you navigate your local market and inform you about your options for negotiating with sellers.

The Bottom Line

Buying a home during a recession can offer unique advantages, but it's not the right move for everyone. Lower interest rates and less competition may work in your favor, but financial stability and great credit are key.

As you start your journey toward homeownership, register with Experian to get free access to your Experian credit report and FICO^® Score^Θ. These resources can help you assess your eligibility and give you insights into the steps you can take to build your credit.

Monitoring your credit score throughout the homebuying process can also help you identify and address potential issues as they arise, helping you get to the finish line.