Today, economic uncertainty seems to be the only certainty. A series of tariffs threaten higher prices and trade wars, while stock market declines and federal job cuts appear to be obvious indicators of recession. As mortgage rates drop, homebuyers often ask if homes are more affordable amid the economic downturn.
After working in real estate for over 20 years, I have seen market volatility from boom to mature crashes, such as 2008. The truth is that no matter how chaotic the economy is, there will always be opportunities for some homebuyers. During the recession, the market will not stop. It just changes. If you are financially prepared, this transition can actually be good for you.
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Let’s see what the recession really means for mortgage rates, whether house prices will fall and when is a good time to buy a home.
Are we in recession?
There are many recession warning signs now. Layouts are picking up, GDP is slowing, and consumer confidence is declining. The salary is not too far away and the retirement account is hitting.
While lower disposable income and higher budgets suggest a general slowdown in the economy, we are technically not in a recession. To achieve this definition, negative GDP growth will be achieved for two consecutive quarters. But for many people, it already feels like one.
Even if inflation does not rise, the cost of daily goods and services remains high, and the budget will be hammered. When people feel squeezed every time they swipe their card in the grocery store, it shapes how they view large purchases like homes.
Has the interest rate decreased?
Lending has been expensive over the past few years, keeping families and businesses alert to loans. The Fed may lower interest rates again later this year, eventually making financing cheaper.
But these cuts may not arrive until summer. The Fed is a little troubled now. The economic loss of steam and inflation is cooling down, but not fast enough. Central banks are cautious about transfer policies, especially as tariffs drive price recovery.
Although lower interest rates will eventually affect the housing market, the Fed does not directly control mortgage rates. Mortgage rates are based on many factors, such as bond markets and investors’ expectations. Even if the Fed starts lowering interest rates again, don’t expect mortgage rates to fall like crazy. Many of these expected cuts have been priced into the market.
Will mortgage rates drop?
As we recently saw in 2020 and early 2008, mortgage rates typically fall during the depression. Lower interest rates help boost the economy, the Fed knows that.
But this time, things got even more chaotic. There are fluctuations everywhere. Even if prices may drop, they may return to their original state with any good economic news. Like many experts in the real estate industry, I think the average interest rate for 30-year fixed mortgages will hover between 6.5% and 7.25%, with a weekly jump and drop.
If you have a 4% or 5% mortgage rate, you may have a longer wait time than you want. Seeing a sharp drop in interest rates will require more negative economic news.
It is also worth pointing out that your personal financial situation is more important than your interest rate. If you have a solid source of income and long-term plans to repay your home loan, it may not be worth it to wait for the perfect rate.
Will the price of houses be reduced?
After years of steady growth, if the bubble bursts, house prices may collapse. But in today’s housing market, real estate prices will not fall sharply.
Historically, house prices were not actually much during the recession. The 2008 housing crash was the exception, not the rule. What we may see is appreciation or a slight decline in certain markets, especially in areas with higher insurance costs, taxes or natural disasters (Florida, Texas and Louisiana). As supply increases, we can see house prices drop in some parts of the country.
But nationwide, we are still dealing with low inventory. It is difficult to see a sharp drop in prices before this changes. In addition, given the high construction and labor costs, it is obvious that housing prices will not drop anytime soon.
Is it cheaper to buy now?
If you have a stable financial situation, buying a home in a recession may be cheaper. You may find better deals, less competition and more negotiation capabilities. However, if loans are tightened, it may become more difficult to obtain. This is something we have already started to see using apartments and certain types of properties.
There is also a “wealth effect”. When people feel richer, for example when their stock portfolio or home value rises, they are more confident in making large purchases. But when these numbers start to slide down, and there is even a threat of job insecurity, people will back down even if nothing really changes. Economic turbulence can greatly affect buyer activity. If someone loses $20,000 in a 401(k), they aren’t in a hurry to get a new mortgage.
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Should I wait for the mortgage?
The best time to buy a home is when it makes sense to you. If you have a stable income and good reputation and you are ready to settle down, the downturn in the housing market may actually be in your favor.
Just don’t wait for some magical “perfect time” to get out the mortgage. The green light most people are waiting for does not exist. If you are ready, stay informed and work with the right team, and make smart moves no matter what the economy is doing.
