How a future recession may impact your plan to buy a home

If you’ve been thinking about purchasing a home and you’ve been on the fence because of economic conditions. The following information could assist you in helping to determine when and/or if you should purchase a home…

The concern many home buyers have right now is “I want to wait and see”.  Purchasing a home in today’s environment means you’ll be able to get an incredibly fair and great deal on a home. You can refinance later when interest rates drop. If you wait and interest rates drop that same house could be $50-$70,000 more. A 1% reduction in interest rates translates to somewhere from $50-$75,000 more of purchasing power that your competitors will now have all going after the same home. Big picture- if we’re looking at the economy here are some facts you have to remember. Number one primarily economic conditions will continue to change and evolve regardless of whether you purchase a home or not anyway.

That being said inflation is at its highest peak in years. The federal reserve is increasing the fed funds rate to tame inflation. Their aggressive stance on monetary policy more than likely will put us into a recession. That recession will be good news for mortgage rates. In a recession job, with losses and unemployment, companies trim their balance sheet with layoffs. Unemployment will rise which will signal bad news to the stock market this means all of our assets including stocks bonds IRA 401(k) and investments might take a hit.

That will come at the expense of investors moving the money out of the stock market and into a safe haven which is the bond market i.e. the fixed-income market. The yields will rise, and mortgage rates will come down. This has happened in every recession we’ve had in the last 20+ years. Recessions are good news for mortgage rates. Anything that’s economically negative (other than inflation) will push mortgage rates lower. As the fed increase the federal funds rate, the cost of funds for Wall Street also gets more pricey which then leads to less business because it cost too much to transact, and if you can’t transact you don’t turn a profit and if you don’t turn a profit you have to lay people off to lower liabilities to weather the financial storm.

In turn, a flight to safety ensues as monies are moved into the bond market driving mortgage rates lower. So if you’re feeling good about your job and income and you can afford the mortgage payment, buy a home.  It could make prudent economic sense to purchase a house with today’s interest rates knowing that a forthcoming refinance opportunity is highly inevitable within the next 12 to 15 months or sooner.

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