4 Reasons You Should Buy A Home During A Recession

Toronto's best mortgage brokerage, Cannect Home Financing, returns with episode 051 of Make Money Count. This week, Marcus and Justin outline four reasons to buy a home during a recession. It may seem scary to take the completely opposite path of everyone else, but it can prove to be a great decision in the long run. Have a listen to this episode to hear these great reasons.

1. The Math

Over the last two years, interest rates have gone up drastically, which has made it much less affordable to buy real estate and service the debt on it. However, if the purchase price drops enough to counter this rate increase, you'll find that the math could balance it out. If you were willing to purchase a property when the 5-year fixed rate was 2.5%, how far does the price have to drop for you to still want to purchase when the 5-year fixed rate goes up to 5.5%?

Well, on a $500K mortgage, this extra 3% of interest is equal to $15K per year. Over the 5-year term, that is $75K, or 15% of the mortgage amount. This means that if you can purchase the property for 15% less than you were willing to pay for it a few years ago, it would negate the cost of the interest rate increase.

2. Long-term success

You make money when you buy something, not when you sell it. If you make a purchase when prices are lower, you are likely to set yourself up well for the future when others buy it from you. Over the long-term, property values trend upwards. So similarly to stock purchases, "buying on the dip" will set you up for success.

3. You have your pick of the litter

During a recession, the supply of housing available tends to exceed the demand. This means you don't have to settle for the wrong house because there aren't enough affordable options available. When supply exceeds demand, it means that there is more to choose from. Conversely, this leads to a lack of bidding wars and gets you much better price. No more buying a house next to the train station because it was the only affordable place you could find with a spacious backyard. During a recession, you'll be able to get that corner house you've always been dreaming of.

4. The process is less stressful

When the housing market is strong, it's actually a tough time to be a buyer. People line up to place offers on home, they sell in the blink of an eye, and they end up going way above asking price. During a recession, the tables turn. Agents are begging prospective buyers to check out an open house. The visits are on your schedule, not theirs. You can also take your time submitting an offer without fearing the home will be sold before you even leave the open house. If you can handle the stress of market uncertainty, the tradeoff will be much less stress in the home buying process.

It won't be easy to buy real estate in a recession, but was it easy to buy before the recession either? Buying a home has to be done when the time is right and a recession should not scare you away.

 

Episode Transcript: Make Money Count 051 Transcript - 4 Reasons To Buy A Home During A Recession

 

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