As the signs of an imminent recession continue to be evident and inflation remains at its highest levels, the question is bound to arise: is this the right time to purchase a home? Even though Canada has not officially entered a recession (characterized by two back-to-back quarters of a decrease in the Gross Domestic Product), it is expected to occur soon, as per the Royal Bank of Canada’s latest outlook. This will be due to the increasing interest rates and the subsequent decline in both purchasing power of households and the housing market.
On the one hand, a recession may lead to unique opportunities to acquire property at cheaper rates. Still, it also comes with the risk of financial difficulty if your salary is impacted. So should you consider buying a house during a recession or wait it out? To determine if it is a wise decision, let’s take a look at the advantages and disadvantages.
What are the advantages of buying a home during a recession?
Investing in a home during a recession can be a smart financial decision, as the country’s housing market has a chance to take a break from an overvalued state. There are numerous advantages of purchasing a property during an economic downturn, including:
Lower Home Prices: Prices tend to decline during a recession due to a reduction in buyers and a more eager mindset among sellers. If lenders start foreclosing on properties, this can also lead to further drops in pricing.
Increased Options: During an economic recession, there is a larger inventory of homes for you to choose from, potentially providing a better selection for you to find a house that suits your needs. If you’re willing to do some renovation, you may be able to find an even better deal on a fixer-upper.
Extended Decision-Making Time: Over the past decade, it has been quite difficult to buy a home due to the high demand and fast-paced decision-making required. In a recession, homes are much more likely to stay on the market longer, granting you extra time to decide whether or not to purchase.
Favourable Terms: Conditions like a home inspection and financing approval can often be put in place when buying a house during a recession rather than in a seller’s market. Furthermore, you may also be able to make the purchase conditional upon the sale of your current home.
What are the downsides to buying a home during a recession?
When it comes to buying a home during a recession, there are some serious downsides to consider. Even if it appears easier to purchase a home due to lower prices, the risks are heightened as you have less equity in the property. Therefore, you should be aware of the potential issues associated with a home purchase during an economic downturn.
These issues include an increased chance of job loss. Although unemployment rates seem relatively low in the present labour market, a recession could see this situation change dramatically. This means you could be faced with making large mortgage payments without the paycheque to cover them.
Moreover, selling your home could take a lot longer than usual if you ever find yourself in need of doing so. It could take up to six months or more to find a buyer during a recession, meaning it may not be a viable option if you’re short on time.
Home prices may continue to drop as well, meaning you may never get the same amount of money you paid for your property. In addition, inflation and interest rates may continue to rise despite the recession, leaving you in an even less affordable position.
Are you considering buying a home but concerned about navigating the uncertain waters of a recession? Don’t worry; mortgage specialists are here to help! Contact a mortgage specialist today to get advice on preparing yourself for buying a home during a recession.