‘The situation is dire’: Nearly two-thirds of potential homebuyers would welcome a recession if they could get lower mortgage rates — here’s what they’re not considering

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FEBRUARY 3, 2024

Many aspiring homebuyers would welcome a recession. – Elena Berd/Shutterstock

With mortgage rates still near the 7% mark and home prices still high, many potential buyers are seemingly sitting on the sidelines until their prospects improve: pending home sales have dropped to their lowest level in more than two decades

The situation has become so unsustainable that 64% say they wouldn’t even mind a recession, if it helped them better afford a home by lowering mortgage rates, according to a Credit Karma study.

“There is no denying how difficult it’s become to purchase a home in America today, especially for first-time buyers,” said Aniva Hinduja, general manager of home and mortgage at Credit Karma, in a press release.

“When a majority of potential home buyers are wishing for a recession so they can afford a mortgage, you know the situation is dire.”

Although prospective buyers are feeling desperate, a recession could bring other changes to the economy that could potentially impede homeownership as well.

What they’re missing

It’s clear that the current housing market is keeping the white-picket-fence dream out of reach of many Americans.

Roughly 82% of respondents in the Credit Karma survey conducted by The Harris Poll say the country is grappling with an “unprecedented” housing affordability crisis, and another 3 in 5 who’ve never bought a home don’t think they’ll ever be able to do so.

But is a recession really part of the answer?

The Federal Reserve spent multile years raising interest rates to combat persistent inflation. But in a recession, the opposite usually occurs to encourage more spending.

And when interest rates fall, you can expect mortgage rates to follow — meaning buyers may be able to secure mortgages with cheaper monthly payments.

But that doesn’t necessarily increase the availability of homes for sale, which has been quite low for a while. And with lower supply, you can expect prices to stay high as well.

The National Association of Realtors (NAR) expects house prices to rise 2.6% in 2024.

“There are simply not enough homes for sale,” Lawrence Yun, NAR chief economist, said this summer. “The market can easily absorb a doubling of inventory.”

That said, Yun also believes any “meaningful decline” in mortgage rates could still lead to more buyers, and the NAR forecasts existing home sales could climb 15.5% nin 2024.

It’s also crucial to keep in mind that during a recession, employment typically goes through a slump as well.

In that case, you can reasonably can expect more layoffs and pay cuts which could mean some hopeful buyers might not be able to afford or even secure a mortgage.

Some buyers are getting creative

Some Americans are still taking a chance in the current housing market, with plans to purchase in the next three years. But they’re going to have to get creative in order to afford a home.

According to the survey, nearly 2 in 5 respondents say they’d be willing to take on a side gig or restrict or stop spending on non-essential purchases if it would improve their chances.

Some say they’d lock in a mortgage at a higher rate, in hopes they can refinance later if rates go down, and others are considering getting an adjustable rate mortgage instead — which usually comes with a lower rate, but resets periodically depending on a certain economic benchmarks like the Fed rate.

A few are even moving in with their family or friends for the time being to build up savings, or are putting important life events, like getting married or having kids on hold.

There are other options when it comes to investing in real estate without buying a physical property as well.

For example, you could buy shares in rental homes and vacation rentals for a much smaller minimum investment, compared to purchasing a home.

Or you could look into commercial real estate and own shares of institutional-quality properties leased by major retailers.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.


Courtesy: Moneywise