What to Know About Buying a Home in a Down Market
We’re heading deeper into a recession. While economists don’t predict that this one will be as bad as the Great Recession of 2008 when all is said and done, they do predict that economic activity will continue to decline for quite a while.
While this might sound dire, it’s actually somewhat great news for those interested in buying a home. Interest rates are at historic lows and certain sellers seem to be eager to offload their current homes in order to take advantage of these rates.
Here’s what you need to know about buying a home in a down market.
What is a Down Market?
More than a mere recession or a dip in the market, a down market in this context refers to a housing market where prices have fallen and sales have slowed down. In this kind of market, interest rates are usually low, making it a “buying market” for those interested in becoming homebuyers.
Some financial experts note that a down market, also referred to as a bear market, sets up somewhat ideal circumstances for home buying. This is mostly due to low interest rates. However, current conditions make it a little less than ideal due to rising home prices and high demand while interest rates are low.
What to Know About Interest Rates in 2020
If you’re weighing the pros and cons of buying vs. renting a home, it’s essential to take a look at interest rates as they are today. In March, the Federal Reserve slashed interest rates to near-zero amidst growing concerns over the economic impact and hardships about to be faced due to the coronavirus. And, while the pandemic isn’t good news, the lower interest rates are.
MSN reports that, as of August 2020, you’ll pay a combined $429.19 per month in principal and interest for every $100,000 you borrow. That’s historically low, with 30-year fixed mortgage rates sitting just above 3.1% and 15-year fixed mortgage rates at about 2.6%.
This makes this buying vs. renting a home decision a bit easier. If you know that, in the future, you’re going to want to buy a home, it’s worth doing the math and figuring out how much you’ll save over the course of your mortgage loan with interest rates as they are.
Currently, if your 30-year fixed-rate mortgage loan is $400,000, you’ll save $40,000 over the course of the loan repayment period than if you wait until interest rates fo up 0.5%.
Tips for Buying a Home During a Recession
Thinking of buying a home during a recession or down market? You’ll want to think of the following:
- If you’re selling your home, doing so quickly will be key. This is to ensure that home prices don’t drop even further. While that’d be great news for you as a buyer, if you’re selling an existing property, that’s going to hurt your chances of turning a profit on your home in the long-run.
- Make sure you’re looking for the right home. You’re still making a big investment, which means it’s crucial to ensure you’re searching for a property that is going to increase in value over the next 10 to 30 years.
- Look out for homes that have been on the market for quite a while and have gone through more than a few price modifications. They’re more than likely eager to sell and will be more lenient with the price, include furniture, or negotiate closing costs.
- Negotiate with your realtor! In a down market, sales have slowed down, which means that realtors are likely to be struggling as well. In normal situations, sellers sometimes hike the price of a home up to be able to cover commissions and fees. In a down market, however, agents might negotiate that commission, and sellers don’t have to sell the home for such a high price. This benefits you!
Saving Cash for a Down Payment on a Home
Even with lower home prices and lower interest rates, you’ll still want to be able to make a hefty down payment on your dream home in a down market.
If you’re a first-time homebuyer, we suggest taking a look at our guide to 8 First-Time Home Buyer Resources. There, you’ll find information about homebuying programs that can guide you through the process.
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