Written by: Leonard Steinberg - Compass
These days many of us have to argue with our clients about why waiting for a recession to buy may not be wise: One of the most enticing and plausible reasons to buy now and not wait for a recession to hit the markets (if and/or when that may come) has a lot so with credit AVAILABILITY, not just rates or real estate prices. Right now bank lending standards are somewhat relaxed. Yes, some cash buyers could argue that waiting for great deals during a dip related to a recession is wisest, but for all of those seeking financing (the majority of buyers, about 77%) waiting for the lowest rate assuming that will happen during a recession may be unwise. Why?
* During a recession, interest rates drop almost certainly.
* During a recession, people's job security shifts. One of the key MBA corporate rules is to fire people the minute you smell a downturn: almost no bank will lend if you have no job.
* During a recession, banks become much more restrictive with their lending standards. They are far less willing to take on higher risk.
* During a recession, while prices may (or may not) come down further, those seeking financing under more difficult circumstances will be competing for properties with all-cash buyers: Do you know a seller who would choose a financed offer over an all-cash offer during tough economic times? I have yet to meet that seller....
* During a recession the volume of all-cash buyers matters: the more seeking bargains, the smaller the bargains, if they even happen. Right now the volume of cash accumulated and on standby is exceptional.
SO....waiting for an economic downturn in the hopes of lower pricing and cheaper financing may result in disappointment: Aside from the fact that most high-demand properties sell for a premium (or are withdrawn from the market), it's possible that even if you find that elusive bargain, your banker may not be there for you. Let's also not forget we all have to live somewhere: when fewer people are able to buy, rents often rise. If you are financing the purchase of a home, locking in that monthly payment when you are able to may be worth much more than some theoretical savings down the road.