A Recession Doesn't Mean A Housing Crisis
Are you worried about the economy and it's affect on real estate? I think most of us are. We talk of recession every day now and how it may affect the housing market. While I can't guarantee we will even have a recession or when or where it will happy, an economic slowdown doesn't necessarily mean that it's a bad time to buy. In this blog I will discuss why a recession doesn't mean a housing crisis.
There have been 6 recessions in this country over the last 4 decades. Looking at recessions going back to the 80s, home prices actually appreciated 4 times and depreciated only 2 times according to CoreLogic, a leading consumer and property information corporation.
When the economy slows down, it doesn't always mean home values will fall or depreciate. I know we are seeing some housing price reductions, but this may be due to them being overpriced to begin with, lower demand, or reasons unrelated to economic factors. Many of us remember and fear the housing crash of 2008. Bad times yes, but that was an anomaly caused by widespread mortgage fraud. Mortgages were granted to people that didn't qualify or even exist (straw buyers??). A straw buyer is someone who purchases on behalf of another person. But during the housing crisis of 2008, they were considered illegal because they were making purchases for those who were legally barred from making the purchase themselves. Tighter restrictions are now in place reducing the possibility of that ever happening again. So what about present day factors?
In today's market, here in Pittsburgh, PA and most everywhere, home buyers are worried about rising interest rates, therefore many are waiting to buy real estate thinking that the interest rates will decline. But there's no guarantee that they will. I can say that typically you can always refinance later at a lower rate so why not take the plunge now? Remember, If you want the advantages that home ownership affords you, start sooner rather than later. Build up your equity and at the same time hopefully your property will appreciate as well.
Basic economics and Investopedia tells us that appreciation refers to how the value of a property increases with time, and that inflation is the decline of purchasing power of a given currency over time. Therefore, when appreciation exceeds inflation, a hedge is created to offset inflation. Even if other prices increase (i.e.: food, gas, entertainment, etc), buying a home allows you to have something stable. If properly financed, your monthly mortgage payment should stay the same whereas if you are renting, you are subject to arbitrary increases. So home ownership is a great hedge against the impact of rising inflation. Below is a graph from Keeping Current Matters that charts home price appreciation vs. inflation rates since the 1970s.
Bottom line: If you've been thinking of investing in a home or investment property this year, it makes perfect sense to act as soon as possible, even with inflation rising. Remember, real estate is the most secure investment that will always be in demand and historically outperforms inflation. So what are you waiting for? It's Not As Bad As It Seems.