It’s inescapable. Discussions about a possible upcoming U.S. economic recession have become daily media fodder.
Speculation and reality, as we all know, are two entirely different things.
What many Americans don’t understand is that the U.S. economy runs through four periods, or phases.
- Expansion
- Peak
- Recession
- Trough
Movement of the economy through the four periods is known as “the business cycle.” Although no two cycles are identical, they look a bit like this:
Source: Congressional Research Service
The Congressional Research Service claims that “the average expansion has lasted about 58 months (about 4.8 years), and the average recession has lasted about 11 months.”
On July 1, 2019, our economy reached a milestone: 11 straight years of growth, marking this as the longest expansion in the country’s history.
What goes up must come down, right? Which explains the media’s frenzy over a supposed coming recession.
Just today we read an article promising a recession in 2021 from a news outlet who swore in 2018 that it would happen in 2019. Moving the goal post seems to be a favorite pastime of many journalists.
Of course, a recession is coming. It’s part of our business cycle. Pinpointing when it will happen, however, is a bit of a challenge. But it doesn’t take a genius to conclude that a recession is coming. There is always one “coming.” Eventually.
While we urge you to use common sense when reading or listening to the news, especially lately, we understand the power of the media to create fear and doubt in the minds of Americans.
So, on to today’s questions: Is it wise to buy or sell a home during a recession?
Do you need to buy or sell?
The “best” time to buy or sell a home is when you need to. Sounds simple, doesn’t it?
But it’s true. The market could be red-hot for sellers but if you don’t need or want to sell, what difference does it make? It’s not the best time for you.
Confusion reigns among the public during recessionary periods and, as we see lately, even when there’s merely speculation about an impending recession.
Everything seems so uncertain and it’s easy to feel paralyzed. Should I turn this way or that?
There really is no clear course, no crystal ball to let us know when a recession will begin or end. Everybody sort of plays it by ear, or by gut.
The truth, at least statistically, is that aside from the last recession, when home prices hit rock bottom and interest rates were the lowest they’d been in a very long time, home prices typically increase during a recession.
Surprised?
Recessions typically present an ideal time to sell a home. If you are selling your current home and hope to purchase another one, however, that can present a problem.
It isn’t just your home that is higher priced, so if you wait for a recession to sell, be prepared to pay more for the new home than you would were we not in a recession.
The first thing to consider is how much, if any, equity you have in your current home. When all is said and done, after the lender has been paid, the real estate broker has been paid, how much do you stand to make from the proceeds?
Is that enough money to put you into your next home?
Consider, as well, any repairs or upgrades you would like to perform on the new place. Perhaps, if you can’t do them immediately, you are willing to wait until finances aren’t quite as tight.
If the foreclosure rate is high, understand that there may be more and cheaper competition for your home, the buyer pool will naturally shrink as folks lose jobs or tighten their belts. The time it will take to sell your home may be significantly longer than it is today.
If you are at all considering selling your home, we urge you to do so soon. Trying to time the market is a recipe for financial disaster.
Should I sell my home during a downturn in the economy? It’s a common question among homeowners who plan to sell, but it requires some careful thought.
Besides, you will most likely get the highest price possible right now, while there are few homes for sale and lots of buyers wanting one.
Finally, whether or not to sell your home during a recession is question that you should probably run by your accountant, if and when the time comes.
