This year has been quite the whirlwind so far. We began 2020 with news of mortgage rates being at an all-time low and everyone was optimistic about the housing market.
However, in light of the recent coronavirus epidemic, the social and economic landscapes have taken a bit of a turn. On March 3rd, the U.S. Federal Reserve announced a cut of 50 basis points in its short-term interest rate. This is a large reduction to borrowing costs. How will the economic factors imposed on travel, dining, events, lodging, and spending affect this number?
There is talk of a possible recession looming on the horizon due to these factors. Here is how a recession may affect the housing market, and what you can do to get ready.
Draw out a plan now
This doesn’t have to be a detailed step-by-step guide, but something to reference should things go awry.
The very first thing you will want to consult is your financial situation. What stage are you in your career? Do you see yourself prospering further in your field or are you nearing retirement? Who depends on your financial support? What is your current debt-to-income ratio? Compare these numbers to your monthly expenses and budget.
Keep in mind that the threat of losing a job is much higher during a recession. That it why it is vital to initiate a savings plan. You should always have enough money in your savings to cover up to three to six months of expenses.
If you currently own a home
Your home is likely to be your largest asset and mortgages are the leading cause of consumer debt. It is a wise piece of advice to take advantage of the current low mortgage rates and look into refinancing your home loan. This could lower your monthly payment and allow you to put the difference into a savings account.
Another thing to consider if job loss is eminent is your equity. There are options for home equity loans, and by tapping into this, it could literally buy you some time until you get back on your feet again.
Lastly, if you are somewhat nearing the end of the life of your loan, you should consider an early payoff. Start increasing your monthly payments if you currently have the means to do so, or opt for a shorter term loan.
Future homeowners
If you are going into the spring season ready to finally make that home purchase you have been dreaming of, it is important to understand the current supply and demand of today’s housing market.
With mortgage rates at an all time low, houses are flying off the market so fast that there isn’t enough supply for the demand. To prepare for this, have a loan pre-approval ready so that you can act fast. Also keep in mind that prices may be seeing an increase due to the desirability in the market. To combat this, make sure you have an experienced buyer’s agent on your side who is ready to enter a bidding war for you.
Lastly, keep in mind how much home you can afford now, but also how much you can still afford if a recession were to fall upon us. This should play a heavy part in your home search.
