It’s well known that the housing market is heavily influenced by the economy — especially local economies. When the economy is strong, individuals have more money for large purchases and investments in real estate. When things are tighter, though, a lot of prospective homeowners may start to ask whether they’re really ready to take on such a potentially large debt.
If you have been thinking of purchasing a home, you may be thinking about this yourself. Will economic troubles, or even a recession, affect your home purchase? Will the housing market all but grind to a halt? While it’s good to keep questions in mind so that you aren’t taken by surprise, the chance of a recession or other economic downturn having a profound effect on your home purchase is relatively low.
What Is a Recession?
First things first: just what is a recession? It’s a term that’s been tossed around a lot in the last decade or so, but there usually isn’t a good deal of explanation provided with it. Essentially, a recession is a downturn in the economy that lasts for at least six months.
Usually during a recession you’ll see both trade and industry take a hit, and the gross domestic product (the value of the goods and services produced over a period of time, usually called the GDP) fall for at least two quarters in a row.
A recession can last for quite a while and can lead to a significant slump in the market that takes months or even years to recuperate from. An example of this would be the Great Recession which lasted from 2007 its fallout lasted for years in some places and caused a number of significant problems for several sectors of the economy.
The Market and the Housing Market
The economy and the housing market are strongly connected. When the economy is in a slump, this can drive the housing market down. While this generally applies at the national level, this is especially true at the local level. When business is booming and the economy is doing well, the housing market usually gets a boost as well.
This can run the other way, too; problems in the housing market can drag the economy down with it, while a solid housing market can help lift up an otherwise shaky market. Issues with the housing market contributed to the Great Recession and led to economic problems in other nations around the world.
Will the Housing Market Collapse?
Just because there is a link between the housing market and the economy at large doesn’t mean that a recession will bring the housing market down, however. A downturn in the economy might slow housing sales in some areas, especially early on as both buyers and sellers wait to see whether the economic turmoil is going to last long-term.
In most cases, however, this slowdown will be temporary and won’t affect all parts of the nation equally. In some cases, it can even result in unmatched opportunities for buyers who are prepared to act.
Inform Your Decisions
Any time there’s economic uncertainty, it’s always a good idea to consult professionals that will help you find options to protect your investment and avoid paying more than you have to for a home.