When the economy is going strong, remember all good things must come to an end. Depending on who you are listening to at the moment we are on the cusp of a recession. But on the other hand, there are those who claim the economy is stronger than ever. If you are hedging your bet on whether to buy property or not based on a recession, it’s a good idea to consider your options and make-a-decision based on facts pertinent to your situation.
In theory, when prices fall the question isn’t really how low will prices go? The question should be how much property can you buy before prices go back up? If you decide to buy a house during a recession, just as important as getting a good price is being able to ride and hold out through the recession. Understandably, the possibility of losing your home, or watching your parents, friends or neighbors lose their homes may have you doubting whether or not to make a purchase during a recession.
You should never let the fear of anything keep you from doing what you are capable of or from doing something you have prepared yourself for, good economy or not. The key is being prepared. Make sure you have money saved, your credit is in order and you are ready to take the next step in your life.
We’ll explore the pros and cons of purchasing a home during a recession. Pros on Buying a Home During a Recession:
•It’s often a Buyer’s Market: A down market is a buyer’s market. The urgency to sell changes the playing field for the seller. Houses that hit the market during a recession may mean the sellers can no longer pay their mortgages.
•Less Ability to Negotiate: It can be more difficult to obtain financing when economic times are hard. There may be stricter approval requirements from lenders. For example, higher credit score or larger down payments may be needed.
•Harder to Finance: It can be more difficult to obtain financing when economic times are hard. There may be stricter approval requirement from lenders. For example, higher credit score or larger down payments may be needed.
•Competing with Investors: When the market declines there are more investors who want to purchase homes as rental properties anticipating selling when the prices recover. It’s often hard to compete with these investors because they buy in cash.
Strategies to Help You Make a Wise Decision and to Capitalize on Decreasing Prices:
•Buying in a Down Market: Determine if it makes sense for you to make a purchase during a housing downturn.
•Check Out Over-Priced Homes: Often in depressed markets it’s not unusual for some sellers to price their homes too high. If this is the case, it may warrant a second look because the seller may be willing/eager to negotiate in order to sell.
•Do Your Homework: Typically, buyers have the advantage in a depressed market, but this does not mean you should make the purchase without doing your due diligence.
•Get Your Finances in Order: Although you may have the advantage over the seller, keep in mind you are not the only person looking a bargain. Do not prolong the buying process. If so, you may end up losing the deal.
•Keep Your Eyes Open for Eager Sellers: If a homeowner wants to sell in a hurry, you may have additional buying/negotiating power. Use it to your advantage.
•Know Why You are Buying: Ask yourself some hard questions about why you are buying the home. Be organized, prepared and rely on trained professionals throughout the process.
•Make Sure the Title Is Clear: When times are tight, many sellers may want to rid themselves of their homes because they are upside down meaning they owe more than the home is worth. In other words, they are in over their heads. In some instances, there may be a lien from a service provider, bank, contractor or other lending institution against the property.
Many believe that people who purchase property during a recession or economic downturn tend to do very well on their purchase prices and can ride the value of the property upwards as the economy shifts again.
(Anthony O. Kellum is President of Kellum Mortgage, LLC. Call 248-599-1624 or email Anthony@kellummortgage.com.)
by Anthony O. Kellum
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