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Buying Your First Home (Or Investment Property) During a Recession
If you’re thinking about buying your first home now, you’re likely wondering if that’s the best idea considering our recent recession. The truth is that if you need to buy your first house as a place to live, the market is strong, but inventory is low. If you’re considering the property as a potential income producer, it might be a good time to do a bit more research.
What is a recession?
A recession is easily summed up as a lull in economic activity. The coronavirus pandemic propelled our thriving economy into a recession. The good news is that most experts believe that the real estate market will be largely spared. Historically, recessions can last anywhere from just a few months to a few years, with six months being the shortest and just more than five years the longest. Despite an economic downturn, people must continue to live, and this can include buying a new home.
Safety in real estate
In addition to economic concerns, safety is a key focus right now. Fortunately, you do not have to spend the rest of the pandemic wondering how to keep yourself and your family safe while looking for a home. There are easy ways to keep from coming into contact with the virus. Redfin notes that there are three options that allow you to remotely view a property. These are 3-D walk-throughs, video-chat tours, and video open houses. And when you have your home on the market, too, sanitizing after each in-person showing is a must.
If, instead of looking for a primary residence, you’re looking to purchase an investment property, now might not be the ideal time to buy. In many parts of the country, the real estate market likely won’t take a huge hit. This is due in part to fewer available properties and historically low interest rates. While you can likely still find a well-priced property, prices are not as low as they were in 2008.
Something else to consider before investing as real estate is what your plans are. You typically have a few options. These are to flip a property, become a landlord for long-term renters, or use the home as a vacation property.
If you want to renovate and resell, your biggest obstacle now may be acquiring building materials. Builders have been experiencing significant issues in the supply chain. This filters over into the renovation industry, and your contractors may have a hard time getting things like drywall, cabinetry, and carpeting.
As a landlord, you’ll also need to look ahead at how landlord/tenant laws change year to year. You’ll have to consider whether unemployment will factor into your potential renters’ ability to pay the rent. There are similar issues with owning a vacation property, such as whether it is safe to travel again into your area.
Getting a mortgage during a recession may pose challenges as well. Although mortgage rates are low, lenders may be more cautious about giving out money. If you haven’t already been preapproved, there may be stricter requirements, which your real estate agent can help you understand. And unless you put down at least a 20-percent down payment, you may not qualify for an investment property at all.
If you’re a first-time homebuyer, many FHA loans offer down payment options under 20 percent. These loans are ideal for buyers who don’t have a prolonged credit history. Homebuyers filling out an FHA application may qualify for down payments as low as 3.5 percent.
Buying a house in our current climate is possible, but you have to adjust your expectations. If you’re looking for your forever home, interest rates are low, but there is an unfortunate lack of homes available. If earning an income is your goal, you also need to change your point of view and understand that prices aren’t going to drop that much. Ultimately, the decision to buy is yours, but knowing what you face can help you make a better choice of what to do with your money.