Money Saving

How to Save for a House During a Recession?

Elizabeth
June 13, 2020

JPMorgan economists are expecting a 40% drop in GDP during the second quarter of 2020 and the US weekly jobless claims were 5.2 million for the week ending April 11. It’s those kinds of statistics that seem to have economists and lawmakers worried about an imminent recession worse than the Great Recession of 2008.


Recessions are a natural part of any economy. And, while they’re inevitable, this 2020 recession caused by the Great Lockdown and COVID-19 is a bit different in that it wasn’t necessarily part of a natural economic cycle. Instead, it started out as a public health crisis and has now spiraled into something that’s quite unprecedented for nearly every country in the world.


If the pandemic has caused you to lose your job or simply put a halt to searching for a house, you’re likely finding yourself a little financially stressed out right now, and that’s understandable. Should you even be thinking about buying a house during a recession? If so, how can you save for one? We’ve got all the answers.


How Recessions Affect Real Estate Prices 

Let’s first start things off by talking about the effects of a recession on real estate prices. While most recessions aren’t strongly related to the housing market, the 2008 recession was a bit different. The housing bubble burst and home values dropped. During that time period, over 10 million Americans went “underwater” with their mortgages, which simply means that their mortgages were worth more than their actual houses.


Again, while a recession certainly does have an effect on mortgage loans and interest rates, it’s important to remember that the Great Recession of 2008 was a little bit different and the effects on the real estate industry were especially harsh. However, recessions do tend to affect real estate prices in general. 


Gay Cororaton, director of housing and commercial research for the National Association of Realtors, noted that “It’s because recessions lead to loss of jobs and income, and when people lose jobs, they won’t make a long-term investment such as a home purchase.” As a result, inventory also drops because nobody wants to sell their home in a recession. But, what if you’re looking to buy and snag a great home for way under market value.


Is It A Good Idea to Buy a House During a Recession?

House

The coronavirus pandemic is pushing interest rates down, which usually signals an increase in demand for mortgage loans on a house. However, as millions of Americans find themselves unemployed or furloughed with no real idea of when they’ll be able to head back to work, most families are using their savings to put towards their emergency funds and other necessities.


But, still, is it a good idea to buy a house during a recession? Greg McBride, the chief financial analyst at Bankrate, thinks so. “Despite fear and uncertainty, investors should think to the future, beyond the economic pause and when business and life resumes normalcy. The short-term disruption is unprecedented, but the long-term viability of the economy is not,” McBride said.


We’re experiencing historically low interest rates, which makes it tempting not to invest in a house at the moment. While it’s clear from the last recession that the housing market isn’t in favor of the seller, it certainly is if you’ve been planning ahead and have the cash to invest in a home as a buyer at the moment.


How to Save for a House During Recession

Okay, so you see the benefits of buying a house during a recession and think they outweigh any cons. Now, if you haven’t been actively saving towards buying a home, you’ll find yourself in a unique situation at the moment. If you’re lucky enough to retain your job throughout the coronavirus crisis, you won’t be too affected by the nation’s changing economic landscape.


But, you’ll still need to be smart about how you save during a recession. Saving money requires a lot of dedication and consistency, especially if you’re planning on investing those savings in something like a house or a rental property. First, you’ll want to start with a budget and a spending plan. Assess your current finances and plan ahead for the next 6 to 12 months, if not longer. This includes using online apps and tools to track your spending while trying to stick as closely to the 50-30-20 rule (50% on needs, 30% on wants, and 20% to savings) as possible.


Then, you’ll want to work on optimizing your savings while enhancing your credit score. Federal Reserve rate cuts have led to banks lower their yields, but transferring your savings over to a high-yield savings account is a great idea, especially if you opt for one with an online bank. While you’re bolstering your savings, work on building credit if you can.


And, finally, work towards a manageable goal. How much should you ideally look to be saving if you’re planning on buying a house during or shortly after a recession? According to Realtor.com, you should have 20% of a home's price in the bank for a down payment, about 4% to 6% extra for closing costs, and enough to cover three to six months of living expenses in case of an emergency.


Easily Adding Cash to Your Future Home Savings

It’s still pretty early to tell whether or not the recession caused by the Great Lockdown and COVID-19 will lead to a similar real estate landscape like the one we experienced during the Great Recession of 2008. 


However, regardless of what happens, optimizing your savings as part of a future investment into a home is always a good idea, if you’re able to afford it at least. And, while you’re adding to your savings, you’ll need all the help you can get, whether it’s in the form of a high-yield savings account, a great budgeting app or even a savings-optimized debit card like the Cheese Debit Card.


With 0 banking fee, your FDIC-insured Cheese Debit Card can earn you a lot by cashback and saving bonus. Saving money doesn’t get easier than that. Interested in learning more? Sign up today.

More articles about how to prepare for a recession:

💪How to Prepare for a Recession?

5 Actionable Steps for How to Pay Off Debt During a Recession

Are 401K Investments Safe in a Recession?

Drawing On 2008: Which Stocks to Buy During a Recession

How to Protect Credit Health During a Recession?

Tips to Cultivate a Recession-Resistant Investment Plan


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