Real estate tends to lag behind other economic sectors when phenomena such as recessions take place; as such, it may take some time before the proverbial housing bubble bursts. When that happens, buying opportunities tend to emerge.
Few points are listed below to enlighten buyers out there.
- Tangible Real Estate Bargains
When the housing bubble is in the midst of becoming inflated, a lot of talk emerges about real estate bargains that turn out to be invisible. When home values are rising across provincial markets, everyone gets too caught up in the excitement to realize that the bargains they are talking about are artificial. Once the recession catches up to the housing market, however, we start to see tangible bargains because banks lower their interest rates and mortgage brokers get very competitive. Once these happens, home sellers drop their prices and we finally get to see tangible bargains.
- Defensive Buying is Possible
Many real estate agents talk about defensive buying, a strategy that is not always possible to achieve. In essence, defensive buying consists of applying the five-year rule, which entails looking at homes that will have affordable mortgage payments. This means you can make these payments comfortably, over the five-year period, even if one income earner loses his or her job. During housing bonanzas, defensive buying is virtually impossible to put into practice; during recessions, however, home buyers can actually apply the five-year rule.
- Rental Income is Attainable
Not everyone rushes to buy a home during recessionary times. Many people choose to weather the economic storm by seeking rental situations; this creates an opportunity for home buyers to become landlords. With plenty of tangible real estate bargains to choose from, it is easier to find larger properties with enough living space for a rental unit. Should a recession hit in Calgary, rental demand for basement apartments or even rooms will increase, and this could translate into an income of $800/month, or more, for new landlords.
- Sellers Are Really Motivated
One of the reasons housing markets lag behind recessions is that sellers tend to be hopeful in terms of waiting out the economic storm. Nonetheless, a time comes when they realize that home values are spiralling down; when this happens, they become very motivated and create a buyers’ market. In times of recession, monthly mortgage payments become a serious struggle for some homeowners. This is especially true when they see that property values in their neighbourhoods are falling rapidly. Instead of bidding wars, seller concessions become the norm, and thus it gets easier for buyers to finalize contracts.
- Prices Are Not The Only Enticements
Even during recessionary times, some sellers do not budge from their asking prices, and they may have very good reasons for this stance; for example, they have already figured out how much money they need to settle the mortgage with their banks and how much they will need to move out. In the case of builders or developers, they may be following a strict business plan devised by their accountants. In these situations, sellers tend to get creative; builders may offer upgrades and homeowners may offer furniture. In previous recessions, sellers have been known to offer cars and even boats to close the deal.
- Dream Homes Become Available
One of the most attractive factors of real estate markets during a recession is that many buyers finally find situations that eluded them in the past; some examples include: a heated swimming pool, a house with a secondary basement suite, a duplex close to a school, a home overlooking a lake, etc. Suddenly, these previously unattainable homes come on the market at reasonable prices.
Image source: sellanyhome.com