Many home buyers remember the recession of 2008. During that recession, we saw home values drop tremendously and those able to qualify for mortgages and purchase homes were able to take advantage of very low prices. With the pandemic ushering in the word recession again, some buyers were waiting for home prices to drop significantly before purchasing a home.
If anything, recent data/reports/trends have shown us that no two recessions bring about the same economic results. Here are some examples of preconceived recession beliefs and how they do not add up to the current climate caused by the pandemic.
High Unemployment Means a Drop in Home Prices
Due to past recessions, many people believe that as the unemployment numbers rose during COVID social distancing this would lead to a large number of homeowners missing payments and discourage others from buying, resulting in home prices dropping.
So far, this has not been happening. Homes prices have risen an average of 2.5% shows data from S&P CoreLogic Case-Shiller.
The low-interest rates of mortgages are making homes more affordable and helping to support an increase in home values. In addition help from the government in the form of stimulus checks and other programs has helped many Americans to continue to pay their bills. Though it seems like it has been a very long time, the pandemic induced slump has only been four months long and we may not have yet felt the full impact. If the economy recovers as some have predicted, a negative impact on the real estate market may not be as big as people expect.
Fitch Ratings, a credit-rating agency, sees home prices as 6.1% overvalued on average across the country based on recent price increases, increased unemployment numbers, and lower incomes and rent prices. Fitch Ratings projects that the unemployment rate will most likely drop from just over 10% to just under 8% next year and predicts a high level of home overvaluation. They believe prices will not hit the overvaluation levels from before the recession of 2008 but that home prices will increase to their highest levels in a decade.
Larger Federal Deficits Mean Higher Interest Rates
After observing the previous recession it would be easy to assume that a new recession causing federal deficits to rise would also cause mortgage rates to skyrocket. As mortgage rates continue to decrease though, may people have left this assumption. Interest rates are now lower than they have been in several years as the federal deficit is getting higher.
There are many reasons and observations about how this recession is not like recessions from previous years. Some of the largest differences are in relation to the real estate market including home prices and mortgage interest rates. So buyers hoping to purchase a home at a great deal will end up disappointed as home prices are predicted to continue to rise.
If you are hoping to purchase a home it is best to do so now before home prices become even higher. If you are looking to buy a home in Parkland, Coral Springs, or Boca Raton please contact me right away. I have extensive knowledge in local real estate and can help you find the home you are looking for.
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