Why it may be better to rent rather than purchase a home in a recession
posted on May 22, 2020
We are living through highly unusual times. The coronavirus outbreak, and the economic shutdown and crashing stock market it has ushered in, has many economists believing that a recession is inevitable -- if we are not in the midst of one already. Here a few reasons why it may be better to rent rather than purchase a home in a recession.
Living in unprecedented times makes predicting the future harder than ever. It is seemingly impossible to make plans for next month, let alone plan ahead without knowing what the real estate market will look like a year or two from now. Job security is on the minds of many. Renting may give you a better opportunity to save money and build an emergency fund. If you end up not dipping into your emergency funds, it can always turn into a down payment down the line.
Home prices often dip during a recession. That may sound like good news if you are looking to buy your first home, but it could also mean that a home purchased now could dip in value if the recession persists. If prices remain stable, it could take longer for your investment to appreciate in value.
How long do you plan on staying in your home? With job security on the decline, this can be a more difficult question to answer. If you lose your job, or your income takes a hit, you may need to relocate to find work. This can be complicated if you have to sell your home in an uncertain real estate market.
Obtaining mortgage financing is obviously more difficult in tough economic times. While lenders may lower their interest rates, they also become more risk-averse. This can make it more difficult to secure a mortgage without a significant down payment.
Competition from investors
When the real estate market dips, investors are looking for opportunities. This means you are competing with speculators who can often pay in cash. If you are hoping to obtain a property you can rent out, or just to find a bargain in an uncertain market, be aware of high input costs over and above down payments. These costs can include taxes, insurance, maintenance, upgrades, repairs and occasional rental vacancies. You should have a 20% down payment, plus closing costs, as well as three to six months living expenses saved as an emergency fund.
We hope these insights help you make more informed housing decisions in these uncertain times!
Looking for a place to call home? For information on Panoramic Properties for rent in Mississauga, please visit our website.