Why an Economic Downturn Can Also Be a Good Time to Buy & Sell a Home

Why an Economic Downturn Can Also Be a Good Time to Buy & Sell a Home

Conventional wisdom would suggest that making one of the biggest financial decisions of your entire life is something best done outside of a global pandemic and consequent economic recession. Uncertainty is elevated, people are losing jobs, financial markets are volatile, and businesses face difficulty remaining afloat. In general, these arguments hold water—if you have recently lost your job, it is likely not the best time to purchase a new home. As always, the decision on whether to buy or sell a home will always rely heavily on individual circumstance.

However, assuming you remain employed and relatively confident in your income, there are many factors that might make it a great time to buy a home. First, the benefits of homeownership, which include wealth accumulation, improved health and educational outcomes for children, intergenerational mobility, and so many others, remain relatively unaffected by the current crisis. In addition, our homes have become more important to us that ever with new demands on how we use them. Prior to COVID-19, many were not able to achieve the American Dream while remaining within a reasonable commuting proximity to their center city jobs, because this is precisely where housing was most scarce and least affordable. By increasing the number of workers who have demonstrated their ability to perform at very high levels while working remotely, this crisis has the potential to unlock homeownership for many families.

In addition to improved flexibility, this crisis has also precipitated an unprecedented reduction in the cost of homeownership. During July, the average contract rate on a 30-year, fixed-rate mortgage dipped below 3% for the first time in recorded history. Taken together with median prices that have been growing more slowly, the payment on the median-priced home has actually fallen over the past few years. Back in 2018, when rates were nearly 5%, the monthly principal and interest payment on the typical home was $2,460 in California. In June 2020, the payment on the typical home was just $2,160 dollars. That represents a $300/month savings and will save you more than $100,000 in payments over the life of that 30-year loan. From that standpoint, it could be a great time to consider putting a foot on the property ladder—again, assuming you are still on a solid economic footing.

Of course, this all assumes that a you can find a home that works in a price range that you can afford, which brings us to the question of whether it is a good time to sell a home as well. There’s no doubt that there are a lot of protocols to follow, logistically-speaking, with a real estate transaction in a post-coronavirus world. That being said, inventory took a much bigger hit during the crisis than buyer demand and the number of homes for sale last month was down by more than 43% from the same point in 2019. As a result, homes are selling quickly, there is minimal discounting, and prices are rising. A pandemic may not be the absolute best time to sell a home, but with such voracious demand from buyers far outstripping available supply, there’s something to be said for being one of the few options available in any given market. COPYRIGHT © CALIFORNIA