Is A Recession A Good Time To Buy A House? (2024)

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Key takeaways

Recessions can be a good opportunity for would-be homeowners to secure some real estate
But this isn’t a traditional recession, if we can call it that, and buyers face high interest rates on mortgages and lack of supply
A home is a long-term investment, so timing the market isn’t always the best move

Recessions: not a lot of fun in general, but there are some investment opportunities off the back of them, one of them usually being property. If it’s the right time for you to consider buying a home, you might be keeping a close eye on the housing market.

The problem is the housing market isn’t playing ball right now thanks to a few unique circ*mstances causing a perfect storm. We’ve made the case for and against buying a home right now, that can give you some steer on whether this asset class could be the best move for you.

Saving for a house down payment is a great goal that you can use investing to reach. Q.ai’s Foundation Kits are themed on different topics, designed by human analysts and powered by AI. The algorithm does the heavy lifting and finds the stocks, ETFs and other assets that could bring returns so you can stay ahead of the curve.

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Is the U.S. in a recession?

As it stands, we’re in an economic downturn right now rather than a recession. High inflation has been tempered with the Fed raising interest rates, and the data sets are all trending in the right direction in bringing inflation down.

Stocks are also up this year after a dismal 2022. The S&P 500 is up 7.61% in 2023 as of Thursday morning, while the Nasdaq Composite is up 16.26%. We’re not seeing any significant signs of traders selling off as of yet.

But the ‘R’ word has still persisted. Hundreds of thousands of workers have been laid off in 2023 alone as companies look to cut costs. The International Monetary Fund (IMF) has said “the fog around the world economic outlook has thickened” and expects the global economy’s growth to slow.

Turmoil in the banking sector has left investors nervous, as Warren Buffett has predicted more bank failures are on the way.

It’s a very mixed bag right now, making the decision on whether buying a property is a good idea in the current climate even harder to call. The housing market isn’t behaving normally thanks to short and long-term stressors, so let’s assess the pros and cons on the newest data available.

The case for buying now

The Fed recently raised interest rates to a 4.75% - 5% target range after aggressively raising rates at a dizzying pace throughout 2022. The jury’s out on whether another increase will come in May, but higher interest rates are here to stay until rampant inflation hits a more comfortable level.

The median home price in the U.S. back in Q1 of 2020 was $329,000. In Q4 2022, the average was $467,000 - a massive $138,000 difference. The rapid pace of climbing interest rates has softened the housing market, which is slowly affecting house prices - that Q4 2022 figure was the first time since the pandemic that house prices have fallen (in this case, 0.1%).

There’s more evidence house prices are falling in 2023. The S&P CoreLogic Case-Shiller Indices released its latest data at the end of March, revealing price growth dropped 2% from December 2022 to January 2023 to 3.8%. Crucially, the report found U.S. house prices have dropped seven months in a row.

The case against buying now

While every recession means an economic downturn has arrived, the circ*mstances that bring about each recession are different. Right now we’re not even technically in one, yet we’re facing high house prices and interest rates nearing 7% on mortgages, which haven’t been seen since 2008. Locking into a deal now could mean you’re paying much more interest in the long run.

Another thing to consider is mortgages could be harder to secure. The collapse of Silicon Valley Bank and Signature Bank sent shockwaves throughout the banking industry, even practically toppling Swiss bank Credit Suisse. It’s left banks jittery and while we haven’t seen any real-term effects hit homeowners yet, further instability could have banks retreating on mortgages.

Finally, housing stock is pretty thin on the ground - and has been since 2008, when the housebuilding industry cratered. Anyone locked into a good low-interest deal from before the pandemic isn’t moving anytime soon. As for those homes that are on the market? There’s just not enough of them.

The most up-to-date housing inventory figures show 980,000 units, up 15% from record lows last year - but still low. Last year, the National Association of Home Builders said that U.S. homebuilders would need to construct one million more homes to keep up with demand. As a result, we’re seeing an interesting phenomenon where house prices aren’t falling as quickly as they would in a normal recession because demand is outstripping supply.

The Mortgage Bankers Association has predicted mortgage volume will decline further in 2023, revealing a market-first: banks are actually losing money on mortgages for the first time ever thanks to the mortgage rates increase and low housing inventory issue.

The bottom line

Whether or not to buy a house in a recession depends on your personal circ*mstances, risk appetite and credit score to get access to the best deals on the market. A house is a good investment for anyone, but high interest rates and low supply could scupper the market.

Ultimately there’s never a perfect way to time the housing market, and a home is a long-term investment. If you’ve got your heart set on this asset class, then the age-old advice for saving up a decent-sized down payment, and shopping around for the best rates, still holds true.

A home is just one type of asset to invest your time and money in - the other is the stock market. Q.ai uses an AI algorithm to predict which assets might perform well each week and adds them to a diversified basket for you to invest in. Whether you’re interested in the Emerging Tech Kit or prefer the more conservative Global Trends Kit, there are plenty of choices to help grow your wealth.

There’s no need to worry about market volatility with Q.ai’s Portfolio Protection feature. Available on all Foundation Kits, it’s an AI-powered, pocket-sized hedge fund manager that assesses risks and uses hedging strategies to help you keep more of your gains.

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As an expert in real estate and economic trends, I have closely monitored the current economic climate and its impact on the housing market. The article you shared discusses the potential opportunities and challenges for prospective homebuyers during the current economic downturn. Allow me to delve into the key concepts presented in the article and provide additional insights:

Economic Downturn vs. Recession: The distinction between an economic downturn and a recession is crucial. The article notes that the U.S. is currently experiencing an economic downturn rather than a recession. It highlights factors such as high inflation, the Federal Reserve's response in raising interest rates, and positive stock market performance in 2023.
Housing Market Trends: The housing market is depicted as not behaving traditionally due to unique circ*mstances. The key consideration for potential homebuyers is the interaction between high-interest rates on mortgages and a lack of housing supply. The article suggests that these factors are contributing to a challenging environment for buyers.
Interest Rates Impact: The Federal Reserve's decision to raise interest rates is a significant factor affecting the housing market. The article emphasizes that interest rates are expected to remain high until inflation reaches a more comfortable level. The rapid increase in interest rates has had an impact on the housing market, leading to a softening of prices.
Home Prices Fluctuation: The article provides evidence of the fluctuation in home prices, citing data from Q1 2020 to Q4 2022. The median home price in the U.S. increased by $138,000 during this period, but the article notes a 0.1% decrease in house prices in Q4 2022, marking the first decline since the pandemic.
Mortgage Market Challenges: Prospective buyers are warned about potential challenges in securing mortgages. The collapse of banks, including Silicon Valley Bank and Signature Bank, has created instability in the banking industry. The article suggests that this instability could lead to difficulties in obtaining mortgages, and there is a mention of the Mortgage Bankers Association's prediction of a decline in mortgage volume in 2023.
Housing Inventory: The low housing inventory is identified as a critical issue, with the article noting a shortage since the 2008 recession. Despite a slight increase in housing inventory, demand continues to outstrip supply. This phenomenon has contributed to a unique situation where house prices are not falling as rapidly as they would in a typical recession.
Market Volatility and Investment Strategies: The article touches on market volatility and introduces Q.ai's Foundation Kits, which are AI-powered investment strategies designed to help investors navigate market uncertainties. The kits include themes on different topics, and the AI algorithm identifies stocks, ETFs, and other assets that could yield returns.
Considerations for Homebuyers: The article concludes by emphasizing that the decision to buy a house during an economic downturn depends on individual circ*mstances, risk appetite, and credit score. It advises potential buyers to weigh the impact of high-interest rates and low housing supply on the market. The importance of a sizable down payment and shopping for the best mortgage rates is highlighted.

In summary, the article provides a comprehensive overview of the current state of the housing market amid an economic downturn, discussing both potential advantages and challenges for prospective homebuyers. It underscores the complexity of the decision-making process and the need for careful consideration of various economic factors.