as a The housing market is starting to show signs of coolingBy some standards, you may be thinking that now is the right time to buy a home. Be you Investing in real estate or buying a house to live inThe looming recession may be on your mind. Is it a smart financial move to buy real estate during a recession?
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Important: The housing correction of 2023 could be the largest since World War II.
The answer – as with many things in finance – is “it depends.”
Rising interest rates
The Federal Reserve has raised interest rates seven times since March 2022, to give a prime rate of 4.5% heading into 2023, the highest interest rate in 15 years. GOBankingRates.com reports.
Of course, higher interest rates mean that the same mortgage will cost you more today than it did at the beginning of last year. You can get a little house for your money.
But many factors go into determining your mortgage rate. If your credit has improved significantly since last year, you may have a lower rate now than in 2021 or 2022.
Falling house prices
As interest rates rise, home prices are falling, say experts. The upcoming housing market “correction” is the second largest in the post-WW II era, second only to the 2008 credit crisis. GOBankingRates.com reports.
Falling home prices can signal a good time to buy, except that inventory is still low and inventory tends to decrease even more during a recession. For the same reasons homeowners hesitate to invest in real estate, homeowners may hesitate to sell. While we won’t see bidding wars in 2023 like we’ve seen recently, a slim housing stock may be one reason not to buy during a recession, Forbes reports.
Job insecurity and income instability
Finally, you may be hesitant to invest in real estate or during a recession — or even just before — because you’re concerned about your own financial stability.
By most accounts, the US is not yet in recession. But some sectors, including technology, are less stable than others. Whether you feel it’s time to buy a first home, second home or investment property may depend on your balance sheet, emergency savings and existing debt.
Tips for buying real estate during a recession
If you decide to buy it, make sure you don’t overextend yourself. Don’t deplete your emergency savings for your down payment. And if you’re looking at investment properties, be sure to factor in all costs, including the amount of time the rental will be vacant or the money you’ll need to renovate the property for maintenance and flipping.
Follow the basic rules of real estate investing and find a home in a desirable neighborhood that can improve resale value with cosmetic repairs. Avoid repairers with structurally broken or outdated systems as they may lose money on the transaction.
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If you’re buying a rental or residential property, be prepared to hold on for the long haul as experts are predicting a 10 percent to 15 percent drop in home prices over the next six to nine months. The fact that the market has not yet bottomed out may be a good reason to wait to buy. Of course, if your choice to buy a home is a lifestyle decision, whether you want a bigger place, a smaller place, or the desire to go from renting to owning, you’ll want to balance what’s best for your family. And Your finances.
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This article appeared first GOBankingRates.com: Is it good to own real estate in a recession?
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