Buying a Home in Uncertain Economic Times

By Sharon A. Bassett

The House Price Index is a measure of the movement of the single-family home process in the United States. This Index is

is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975. In 2007 at its all-time high thus far, The HPI for a single-family home was 579.3. By 2012 the HPI fell to 457.5 but has been on the rise ever since. By the end of 2020, the HPI Index was still at 659 and still climbing. While Florida rates have not yet made it into the top 20 highest states nationally, we do still see the HPI rising for the Sunshine State. At the end of 2020 HPI for Florida was 618. This equates to an average single-family home in Florida selling for $618,000 at the end of 2020.

Remember the cream cheese shortage of the 2021 holiday season? According to the U.S. Bureau of Labor Statistics, prices for cheese and related products are 13.49% higher in 2022 versus 2019 (a $2.70 difference in value). For 2022 there is a predicted butter shortage. Between 2019 and 2022, butter experienced an average inflation rate of 5.64% per year. This rate of change indicates significant inflation. In other words, butter costing $3.18 in the year 2019 would cost $3.75 in 2022 for an equivalent purchase. Compared to the overall inflation rate of 4.42% during this same period, inflation for butter was higher. Yet people aren’t buying cows.

In the previous two years, the price of everything has increased. Greatly. None of those prices will be going back down to the comfortable economic place we were in this country pre-Covid. Automobiles have been in short supply and the price keeps going up. Yet we keep buying vehicles, butter, and cream cheese. The price of inflation is not going to fall, and neither is the price of items at the grocery, vehicles, or homes. Odd as it may sound, NOW IS THE TIME TO BUY A HOME.

Buying Power of $20.00 since 2019
Below are calculations of equivalent buying power for Cheese and related products over time for $20 beginning in 2019. Each of the amounts below is equivalent in terms of what it could buy at the time:

Year USD      Value      Inflation Rate
2019                $20        -0.25%
2020               $21.05    5.26%
2021                $21.09    0.19%
2022               $22.70    7.62%

Advantages of Buying A Home During a Recession
. Prices Are Lower

Home values tend to fall during a recession. So, if you’re searching for a home, you’re likely to find:
. Homeowners who are willing to lower their asking prices
. Homeowners doing short sales to get out from under their mortgages
. Banks selling foreclosed properties

Each of these scenarios typically results in purchase prices below or well below what the home would demand during a healthy economy. The combination of reduced pricing and more foreclosures brings cheaper homes into the market.
. Rates Are Lower

Along with falling home prices, recessions tend to bring falling mortgage rates. The housing industry plays an important role in the economy. So, by lowering mortgage rates during a recession, the federal government hopes to buoy home sales by making it cheaper to borrow mortgages. In late January 2007, the average rate for a 30-year fixed-rate mortgage in the U.S. was 6.25%. Two years later, in the thick of the recession, the same rate dropped to 5.10%.4 That 1.15% drop would reduce your monthly payment on a $300,000 mortgage by nearly $220.

Bad economic conditions could mean there are fewer homebuyers with disposable income. As demand decreases, home prices fall, and real estate income stagnates. This is just a general rule of thumb, and during real-world recessions, housing prices may not necessarily go down, or they may experience volatility in both directions.

One of the worst financial mistakes you can make before a recession is overextending your budget. If you’re considering investing in real estate, ensure that you have plenty of room in your budget to afford the investment. If you invest in real estate before a recession, and then you’re forced to sell during a recession, you’ll likely lose money due to market declines. If you’re worried about affording a full home investment, you can make smaller investments in REITs.

The question isn’t how low can prices go during a recession. It’s how much real estate you can afford to buy before prices go back up. Paying your mortgage and riding out the downturn is just as important as finding a low-priced home. Make an honest appraisal of your financial circumstances and use our mortgage payment calculator to determine what you can afford.

Sharon A. Bassett is the Broker and Owner of Bassett Premier Realty, Inc. With an extensive background of schooling, from Pilot Aviation, 15 years of Construction and Design, Business Management, Entrepreneurship, 22 years of Real Estate, Owner/Broker. https://www.bassettpremierrealty.com.

Bassett Premier Realty

Sharon A. Bassett
Broker/Owner | GREEN, ABR, SFR,
RENE, MRP, SRES, HSE, GRI

352-602-0520
bassettpremierrealty.com

sharonbassettsells@gmail.com
Spruce Creek Professional Plaza
10935 SE 177th Place, Suite 201
Summerfield, Fl 34491

References:
Housing Price Index – USAFacts. https://usafacts.org/data/topics/
economy/economic-indicators/economic-indicators-and-actions/housing-price-index
Cheese and related products price inflation, 2019→2022.
https://www.in2013dollars.com/Cheese-and-related-products/price-inflation/2019-to-2022?amount=20