Some economists state a recession is already present, and that our economy is already experiencing the beginning stages of a long drawn out housing recession. Most economists, however, claim that a looming recession is on its way, despite the current stage of the economy. All economists, however, agree that a recession equates to devastation of the economy, which means that that housing market will fall. The last recession in the U.S. began in December 2007 and ended in June 2009, extending over 19 months. If you are considering purchasing a home in the near future, most likely, it will be during a recession, which might hit as early as 2020.
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In this article, we shall discuss how best to prepare for buying a home during a recession. Specifically, this article shall address the following:
- What will happen to the housing market during the next recession?
- Advantages of buying a home during a recession
- Drawbacks of buying a home during a recession
- Importance of Accessibility, Lot Size, and More
- 5 tips of buying a home during recession
What Will Happen to the Housing Market During the Next Recession?
Is a recession a good time to buy a house? Should I buy a house during a recession?
What happens to house prices in a recession? If you are considering buying a house during a recession and are concerned about a housing recession, all is not lost.
In general, recession means a weaker economy, which means less steady jobs and stable incomes. This means that although the desire to own a home will not change, the ability to do so, should a recession hit, may. Furthermore, this means that there may be fewer buyers in the market that you will have to compete with for the same housing. In addition, due to the real estate downturn, sellers may be forced to sell their houses at a lower sale price than they were originally expecting, which could make the purchase price for you, the buyer, more affordable.
Buying a house during a recession? Is it good to buy a house during a recession? What will be the housing market during a recession? Do house prices drop in a recession? What will be the housing prices during recession? On the national scale, real estate has come a long way since the last big recession, which was from December 2007 through June 2009. According to Zillow, a real estate information company, home values continue to rise in most major markets and are expected to increase a total of nearly 4.1% nationally throughout the rest of 2019. This means that the low inventory of available homes on the market and a high volume of buyers contribute to the price increases.
Buying a house during a recession? What happens to house prices in a recession? Although the last recession, more commonly referred to as the Great Recession, hit the housing market hard, many analysts feel that although the economy overall may be harmed, the upcoming recession will not affect the housing market like it had previously.
According to the 2019 Zillow Home Price Expectations Survey released June 5, 50% of the surveyed economists, investment strategists and housing market analysts believe that the next recession will be the real estate recession of 2020, with 19% predicting it will begin in the third quarter. Experts surveyed point to trade policy as the most likely cause of the next recession, followed by a stock market correction and geopolitical crisis. These factors are different from the lax lending policies and financial liquidity issues that contributed to the Great Recession.
Buying a house during a recession? What will be the housing market during a recession? In fact, “if a recession is to occur,” says Mark Fleming, chief economist for title insurance company First American Financial Corporation, “it is unlikely to be caused by housing-related activity, and therefore the housing sector should be one of the leading sources to come out of the recession.”
Buying a house during a recession? What will be the housing market during a recession? What will be the housing prices during recession? The good news is that in the midst of a recession where subprime mortgages are not a significant factor, many experts believe that it’s reasonable to expect that homeowners will want to stay where they are and wait to move when they feel more confident, which can help get other parts of the economy moving. This means that the housing market will not be affected.
Should I buy a house during a recession? However, even if there are homeowners still underwater from the last recession, and if there are homeowners who are affected by the economy during the recession, as they’re making monthly mortgage payments, they don’t need to worry. As long as you can keep paying off your mortgage, recession or no recession, there is nothing to worry about. Accordingly, you should try to make sure you have at least six months of living expenses saved up in case you fall victim to layoffs.
Advantages Of Buying A Home During A Recession
Considering buying a house during a recession? Although you may be concerned about the next real estate recession and are asking yourself is a recession a good time to buy a house, there are some advantages to buying a house during a recession. First off, as stated earlier, as far as when is the next housing market crash predicted, many experts feel that the upcoming real estate recession in 2020 will not be the next housing market crash like it was during the Great Recession of 2007 through 2009. So when is the next housing market crash predicted? It’s hard to say when exactly, but again, many experts feel that although the real estate recession may hit as early as 2020, the housing market will not be affected as it had been in the past.
In fact, when it comes to real estate recession, one of the main advantages of buying a house during a recession , is that it’s often a buyer’s market. Do house prices drop in a recession? They may. Since there will be an economic downturn, meaning a lack of stable jobs or income, there will be people with the ability to buy a home. Although the desire will remain, the means to do so will decrease, which means there will be less competition.
Is a recession a good time to buy a house? Furthermore, when it comes to real estate recession, another good advantage if you’re buying a house during a recession is that since it will be a buyer’s market, sellers will be less likely to sell their home for the asking price that they desire. This means that sellers may be more motivated to sell their home during a real estate recession.
Drawbacks of Buying a Home During a Recession
Considering buying a house during a recession? Is it good to buy a house during a recession? If you are asking yourself, “Should I buy a house during a recession?” and are concerned about the real estate recession 2020, you should consider the potential negatives of buying a house during a recession.
One, you may have trouble getting the proper financing even with your job. Since the economy will be in a downward spiral, banks may be less likely to loan the mortgage money to be able to purchase the property. In fact, the down payment requirements may be much higher as lenders are risk averse.
Two, the quality of the available inventory is on average much lower during a recession. What this means, unfortunately, is that you’ll need to put in more cash and time just to have a livable home.
Three, you’ll face heavy competition from cash investors to be able to close in a matter of days.
Finally, four, although it may be a buyer’s market, some sellers may try to buckle down until the recession ends, which means less room for negotiation.
Importance of Accessibility, Lot Size, and More
Considering buying a house during a recession? Despite the potential real estate downturn during a recession, many experts feel that the upcoming 2020 recession will not be like the housing market crash during the Great Recession.
This means that if you are thinking about buying a house during a recession, you still need to focus on a number of factors when buying. One of the biggest factors for people with disabilities is accessibility.
The Fair Housing Act turns to housing providers such as real estate agencies, realtors, landlords and other included parties such as banks and other lenders, home-insurance companies and housing counselors. This law prohibits any discrimination by mentioned entities making it hard or impossible for a person to get housing because of his/her race or skin color, religion, sex, national origin, familial status or disability.
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The Fair Housing Act requires of home construction builders, architects, developers and owners that multifamily residences built after March 13th, 1991 to meet certain accessibility standards. Included parties can be held responsible to the Fair Housing Act if the accessibility requirements are not met. This includes:
- An accessible entrance on an accessible route
- Accessible common and public areas
- Sufficiently wide doors for wheelchairs
- Accessible routes through and into each residence
- Accessible thermostats, light switches, electrical outlets
- Reconstruction of bathrooms to accommodate any installation of assistive resources
- Accessible kitchen and bathroom space
From the very beginning of the process, you should try to understand what is expected so you can be on the lookout for discrimination.
Another tip regarding accessibility is to know what federal and state loans, grants, and financial assistance may help with down payments or modification costs. This includes:
- ABLE Accounts: This is a type of tax-free savings account that allows disabled individuals to save for a number of expenses, including housing, without affecting their eligibility for social security, Medicaid and other public benefits.
- Department of Housing and Urban Development (HUD): Federal Housing Administration-backed loan (FHA) that requires little money down and can be used to make home improvements for accessibility.
- 203(k) Loan: This FHA loan allows you to finance your home purchase and include the cost of repairs through a single mortgage.
- State-specific programs: New York State has its Access to Home program.
- Veterans Administration: If you’re a disabled veteran, you may be eligible for VA-backed grants to rehab your home, including Specially Adapted Housing (SAH) and Special Housing Adaptation (SHA) and Home Improvement and Structural Alteration (HISA) grants.
- Habitat for Humanity New York City: A non-profit program that builds, rehabilitates and repairs homes for people in need. Each local HFH entity has its own rules, but these homes are usually sold for the amount they cost to build, require a low down payment, and may include a mortgage-assistance program.
- Rebuilding Together NYC: A non-profit group that helps repair and rebuild homes and communities.
Another big factor when you’re buying a house during a recession is lot size. If your lot is larger than your neighbors, it might be worth more and it might not. You need to focus on perceived utility of the lot to a buyer. I’d focus first on the characteristics of the lot. Is your lot a corner lot with more privacy on a quieter street? If so, it is probably worth more. If you have a larger than average lot that sits on a busy arterial street, it is worth less than your neighbors, despite its larger size.
If your neighbors have smaller lots, but great usable back yards, chances are the extra 2,000 sq ft in your back yard isn’t going to make any difference to a buyer. If your neighbors all sit on tiny postage stamp-sized yards with little usable backyard, and you have an extra 2,000 sq ft, that could make a significant difference to a buyer.
Unless a lot is divisible, there is a limit to how much more a buyer will be willing to pay for extra acreage. If a home sits on a large 2 acre yard, many buyers will not pay more for an extra acre or two, unless there is additional utility to having more acres.
Estimating the value of real estate isn’t an exact science, and you need to account for the usability of your lot, not just look at it’s size.
5 Tips of Buying a Home During Recession
Buying a house during a recession? What happens to house prices in a recession? If you’re worried about housing prices during a recession, you should consider the five tips below when considering your purchase during a housing recession and/or real estate recession.
One, make sure your financials are in order: Since the economy will be a slump during a recession, that means a weaker economy, which means less stable jobs and income. Obviously, if you did purchase a home during the recession, and you end up losing your job, paying off your mortgage could prove difficult. Accordingly, you’ll want to make sure you are financially secure before you proceed with your home purchase, and try to have at least six months of savings stored up in case of such an event.
Two, acknowledge that you’re buying a home, not an investment. An investment is anything you put money into with the expectation that you will earn money as a result. Accordingly, a smart financial decision is something that saves you money in the long run. So if you make a smart purchase, and if you stay in your home for an extended period of time, buying a house can cost you less than renting over the long term. It can therefore be a smart financial decision, but not necessarily a good investment. So when you’re buying a home during a recession, your main concern is buying shelter for yourself and your family. Unless you’re fortunate enough to be able to obtain a good deal and intend to flip the property, you’re not buying a house as an investment during this real estate recession.
Three, be conservative. During a recession, the economy will be weak, and there will be more of a chance that businesses will close, people will lose their jobs, and unemployment will rise. Now is not the time to start spending needlessly, and therefore you should only focus on the bare necessities. So if you intend to purchase a house during a recession, you’ll need to be watchful of where and how you spend your money.
Four, you’ll want to obtain as many concessions as possible. Since you will be in a housing recession, you’ll want to pick up as many discounts and real estate concessions that are being offered to you. If a seller or landlord is offering concessions, it’s a safe bet that the economy is hurting and they’re desperate to sell or rent their property. Concessions are anything that sweetens the pot in a real estate deal. In the case of sales, they might be in the form of cash back to the buyer, a reduction in sales price or the inclusion of a few appliances in the deal. Most commonly, however, concessions involve sellers picking up some or all of the closing costs. Lenders have strict rules regarding concessions that typically prohibit a direct cash exchange between buyers and sellers outside of settlement, which could be construed as fraud.
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Five, focus on foreclosures. What happens to house prices in a recession? During a recession, a weak economy means less jobs, less money, and unfortunately, more house foreclosures. This means that if you are looking to buy a house during a recession, you’ll want to pay particular attention to bank foreclosures so that you’ll be able to try to find housing as close to your budget as possible during this housing recession.
At Law Office of Yuriy Moshes, we are experienced and knowledgeable and are one of the top real estate law firms NYC because we keep up-to-date with the NY real estate law, NY real estate commission law, and NY real estate law. We represent buyers in the greater New York City area including all its boroughs, including Manhattan, Brooklyn, Queens, the Bronx, and Staten Island) as well as Northern New Jersey, Long Island, and Upstate New York. If you plan on purchasing your home, especially during the 2020 housing recession, you need to consult with the Law Office of Yuriy Moshes.