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Should I Buy a Home During a Recession?

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Recession or not, it’s pretty much impossible to time the real estate market. And anyone who has done it before, has likely done it by accident says VP of Key and 30-year real estate veteran, Mark McLean. “Real estate cycles are very complicated, with a lot of moving parts; the direction of interest rates, employment levels, the value of our dollar, even global sentiment all play a role in local real estate values,” McLean says. Instead of focusing on timing the market, think about whether the timing is right for you. With a recession, you need to be thinking about more than how low prices can go. Paying off your mortgage and riding out an economic downturn are just as important as snagging a good deal.

How will home prices be affected by a recession?

Like most elements of real estate, predicting prices is next to impossible. If you’re lucky and have your finances in order, you may be able to scoop up a deal during a recession, but this isn’t necessarily true all the time. It’s possible that inventory will be low which will drive higher prices and competitive bidding wars. Or, the inventory that is available may have been vacant for some time or be in need of major renovations (tip: do your research and have thorough inspections done). Keep in mind that deep-pocketed investors may be thinking the same thing as you, so while traditional homebuyers may be down, competition from investors could be up. If you do buy a property during or before a recession, it could also mean that the value of your new home decreases during the recession. Historically, Toronto condos have proven to be one of the more resilient real estate assets in the home market, as shown by their quick recovery in 2008 and 2009.

What’s my time horizon?

How long do you plan on living in the home? If a recession hits, the longer you plan to stay in your home, the better. Cycles do recover, so if you’re planning on holding your property for some time, you’ll be able to ride it out. “If you’re buying a house only to hold for a year or less, and then sell to hopefully make a quick profit, you’re playing a very risky game,” says McLean.

Lower interest rates

While home prices may decrease, recessions also tend to lead to falling mortgage rates. This definitely falls in favour of buying during a recession as you’ll end up paying less in interest over the years which could save you thousands of dollars. The flip side of this is that obtaining a mortgage can be more difficult during uncertain economic times. Banks are less likely to lend money during economic downturns and can become more strict with requirements; often they’ll be looking for mortgage applicants with hefty nest eggs already saved.

How will jobs be affected by a recession?

One of the major concerns of a recession are employment rates. The potential for losing one’s job during a recession is one of the major drawbacks to purchasing a home during a recession, that’s why it’s important to have a nest egg should you decide to move forward with making a purchase. When it comes down to it, whether or not you decide to buy a home during a recession, experts agree that stable employment and plenty of savings are two key factors. McLean advises, “If you plan on living in your home for a long time, you can ride out more market uncertainties”. And if you’re not sure whether you want to take on a mountain of debt, look into emerging homeownership models like Key’s co-equity model where you can buy a home without needing to qualify for a mortgage or take on a mountain of debt.

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