Introduction
In this article, we will deal with two separate but interrelated subjects. The first is trying to time the purchase of a new home in volatile times. Is it a worthwhile exercise? The second is looking at a home cash buyer, not to buy your house but to sell you one! Can you extract your dream home with extra asset value by dealing with a professional real estate trader? We’ll address both questions and tie them together.
If a recession is coming, does it matter?
The big R is on the tip of everyone’s tongue lately, with spiking inflation, the slow supply chain, and two quarters in a row showing decline. Indeed, going by the old definition, the recession is on top of us and driving the economy. However, to the contrary:
- Company profits are robust
- Unemployment statistics show that people are picking and choosing their spots in a vibrant labor market.
- Consumer spending refuses to buckle.
Thus, it’s confusing. So, where’s the doom and gloom and financial misfortunes that hit us between the eyes in recessionary times? It seems that the official recessionary kick-off is the decision of the National Bureau of Economic Research (NBER), and they’re not calling it just yet.
So let’s assume we’re headed into a declining economic phase that will only show itself after you buy a home. Alternatively, the two questions to homebuyers who are unsure if it’s feast or famine coming our way are:
- Does it really matter?
- Is it wise to sit on the fence and only pull the trigger when we see a strong economic trend, especially when the picture is so murky?
- How hard a knock is investing in a six-digit asset to value during a downturn over time?
A look-back in recession history
For sure, anyone who bought a home in 2007 (the start of the Great Recession) lost on average 15.96% by 2012. For example, assuming Joe bought a house for $200,000 with an eighty percent mortgage ($160,000) in this volatile period. The record shows he watched the value drop to $168,000 over five years, barely above the loan value. In addition, his investment of $40,000 dwindled to $8000 in 2012, an unrealized loss of $32,000. During that time, people were investing with five percent equity prolifically, facing situations where they were underwater (i.e., the loans were greater than the residence value). Moreover, family breadwinners were losing their jobs, thus unable to service the loans even if they wanted to fight through the tough times. As a result, foreclosures flooded the market and left us with a sense that any recession brings misery and financial failure.
Moving on, Joe’s house appreciated by around 6.5% come 2017. (i.e., to $213,000). However, according to Zillow, it escalated in value to $355,000 by 2022. Indeed, Joe’s investment of $40,000 had grown to $195,000 (nearly a five-fold multiple over fifteen years) – as long as he stayed the course.
Since the financial crisis described above, where banks and mortgage institutions were going belly-up every week, borrowing protocols have tightened considerably. Unless real estate investors can come up with at least thirty percent equity and show stable income on official IRS returns, the chances of getting a loan are minimal. Also, work opportunities are plentiful, so income cash flows are unlikely to slow or dry up.
Other than the 2007 – 2012 event, other recessions have been short-lived. For example, consider the preceding one in March 2001 to November 2001, less than a year, before moving back into an upward trend. Despite this “blip,” the housing market held its own during that time, growing by 6%. Then, from 2001 until the next downturn, the property index went up nearly 50%, creating a solid buffer against the 2007 – 2012 slide of 15%.
The bottom line is that it’s a fool’s errand to predict recessionary times. But, more crucially, even if one gets caught in the middle of one, the light at the end of the tunnel is not an oncoming train. Instead, the indications are that a home is a resilient asset as long as sound financial management accompanies buying one.
So, how do you buy astutely?
For sure, anyone who bought a home in 2007 (the start of the Great Recession) lost on average 15.96% by 2012. For example, assuming Joe bought a house for $200,000 with an eighty percent mortgage ($160,000) in this volatile period. The record shows he watched the value drop to $168,000 over five years, barely above the loan value. In addition, his investment of $40,000 dwindled to $8000 in 2012, an unrealized loss of $32,000. During that time, people were investing with five percent equity prolifically, facing situations where they were underwater (i.e., the loans were greater than the residence value). Moreover, family breadwinners were losing their jobs, thus unable to service the loans even if they wanted to fight through the tough times. As a result, foreclosures flooded the market and left us with a sense that any recession brings misery and financial failure.
Moving on, Joe’s house appreciated by around 6.5% come 2017. (i.e., to $213,000). However, according to Zillow, it escalated in value to $355,000 by 2022. Indeed, Joe’s investment of $40,000 had grown to $195,000 (nearly a five-fold multiple over fifteen years) – as long as he stayed the course.
Since the financial crisis described above, where banks and mortgage institutions were going belly-up every week, borrowing protocols have tightened considerably. Unless real estate investors can come up with at least thirty percent equity and show stable income on official IRS returns, the chances of getting a loan are minimal. Also, work opportunities are plentiful, so income cash flows are unlikely to slow or dry up.
Other than the 2007 – 2012 event, other recessions have been short-lived. For example, consider the preceding one in March 2001 to November 2001, less than a year, before moving back into an upward trend. Despite this “blip,” the housing market held its own during that time, growing by 6%. Then, from 2001 until the next downturn, the property index went up nearly 50%, creating a solid buffer against the 2007 – 2012 slide of 15%.
The bottom line is that it’s a fool’s errand to predict recessionary times. But, more crucially, even if one gets caught in the middle of one, the light at the end of the tunnel is not an oncoming train. Instead, the indications are that a home is a resilient asset as long as sound financial management accompanies buying one.
In summary:
Tackle economic volatility by buying when the times suit you, not when they align with sunny skies. Value in real estate will accrue no matter what over many years – that’s the nature of property portfolios. However, finding different buying channels is crucial to establishing a value base from the get-go.
- When you buy on the MLS, sellers have surely taken the 6% commission they must pay into their calculations.
- The latter isn’t there in residences cash buyers own.
- Also, you’re saving them the commission in offloading the house through an agent.
In short, it’s an arena every house buyer should explore to snag a deal that’s better than the traditional market can ever offer. So, if you see yourself as a homebuyer or seller in Birmingham, Alabama, contact Home Buyers Birmingham today; you’ll get a fantastic deal either way.
