The word “recession” can naturally strike a chord of anxiety in anyone. Our wallets can feel a sting, and any news that the economy is on a downward slope is worrying. A recession is a complex occurrence, full of ups and downs. This is especially true when it comes to the housing market and Botaniko homes for sale.
You may have lots of questions about recessions and Botaniko Florida real estate. What will happen to buyers? How will sellers react? These are just two of the questions that come to mind for anyone invested in the housing market. Below, we’ve answered those questions and more.
Highlights: the recession and the housing market
Let’s start off our insider’s guide with a look at the highlights. The real estate market during a recession is very complex, and we want to ensure that every buyer or seller gains a general understanding of its impacts before we continue. Below, you’ll find a cliff notes version of what goes on in the housing market during a recession:
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A recession generally affects the housing market negatively, but not always, and not for everyone.
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Homebuyers benefit the most in a recession (especially luxury homebuyers) as home prices drop and fewer buyers enter the market.
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Not every recession affects real estate prices the same way, and property values don’t always drop.
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The qualifications needed to apply for mortgage loans generally get stricter.
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New home construction usually drops in a recession, though historic and high-end homes can maintain high demand.
Housing prices generally fall
The first signs of a recession affecting the market are usually easier to tell than others. Namely, we see home prices drop. This is due to a variety of factors. Fewer buyers are actively looking for new homes, more families are forced to go into foreclosure, and the supply of newly constructed homes wanes.
In general, a recession causes all homes in the country to drop by about 5% each year. That is, except for special cases like the Great Recession when home prices fell by 13% or more. During the Great Depression, home prices fell by two-thirds, while the recession in the early ‘80s hardly affected home prices at all.
A recession can favor buyers more than sellers
Along with the trends we noted above, it’s important to compare the impact of a recession on buyers versus sellers. Home prices generally fall, which makes the majority of homes more affordable for those with the financial health to invest. Mortgage rates also drop during a recession. This can make it easier for buyers to enter the market or continue to develop their real estate position when monthly payments drop.
Sellers, on the other hand, tend to struggle more than buyers in a recession. Sellers may have to keep their homes on the market longer as buyers hesitate to offer, hoping prices will drop even more. The final sale price of homes in a recession can fall below what sellers originally asked for.
Less competition among buyers
Another way a recession affects the economy is by reducing the number of buyers in the market. Purchasing power drops, making it a less opportune time to invest in new housing opportunities. We also see more families turning to rental housing in recessions as it becomes more difficult to afford a mortgage loan.
Fewer buyers on the market aren’t always a bad thing. Buyers with good credit and a history of reliable income can take advantage of the low amount of competition to purchase houses for historically low prices.
This pattern is doubly advantageous among luxury home buyers and investors. In locations with a high inventory of luxury real estate, property values can drop at a higher rate than in suburban and rural parts of the country. This means a recession can be an excellent time to invest in high-value homes in urban areas and beyond.
Fewer homebuyers on the market
During a recession, the number of buyers on the market will naturally drop as fewer families can afford to invest. We notice this trend the most in families who work in certain industries. Families who work in the energy and automotive industry were affected the most in the latest recession, but this won’t necessarily be true in the future.
Many economists say that such buyers are in a house poor situation, meaning that many buyers may lack the reliable income to buy and maintain a mortgage over the course of the economic downturn.
Fewer new homes built
Construction of new homes and housing units may also decline during a recession. Developers may be hesitant to build as they notice less demand among buyers.
However, this isn’t always a negative effect for everyone in the market. Legacy homes built in the past can retain a high amount of demand, especially if they require very little repair or renovation. Luxury buyers and sellers can both place themselves in a good position at this time by marketing the numerous amenities and rarity of their property.
High-price properties can devalue
Another way that recessions can benefit buyers is by the devaluation of higher-priced homes. The type of buyers who traditionally invest in luxury real estate tends to be affected by recessions in one of two ways, either more or less than the average family. High-end investors may have more investment in the stock market and other volatile elements of the economy. That can cause buyer hesitation, lowering demand and thus lowering property values for luxury homes. If elite buyers can afford to remain in good financial health during a recession, they can find themselves in a great position to buy a high-end home for a low price.
Get in touch with a Botaniko Florida real estate agent today
If you have any questions or comments about navigating the real estate market in a recession, don’t hesitate to reach out. Contact real estate professional Esteban Hernandez today if you’d like to discuss Botaniko homes for sale and learn more about luxury real estate!
