Should you buy a house during a recession?

Back in 2022, as inflation grew and gross domestic product (GDP) declined, many feared that the country was headed toward a recession. The Federal Reserve raised interest rates dramatically — primarily to combat inflation, which has in fact come down significantly. But Fed rate hikes affected other segments of the economy as well, including the housing market.

Interest rates are not directly tied to mortgage rates, but typically, as the one increases, so does the other. The result of pricier mortgages has been a slower housing market, with fewer buyers able to afford the purchase.

“A recession typically leads to a reduced level of real estate activity, as fewer people are willing or able to buy,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “But this won’t necessarily lead to lower home prices if the supply of homes available for sale is very low.”

In fact, the supply of homes is still relatively low, and home prices are very high. And while odds of a recession had been fairly low before the Trump administration’s tariffs, they have now shot up significantly, according to Bankrate’s Q1 Economic Indicator Survey. If you’re hoping to buy a home, what does this mixed bag of conditions mean for you? Here’s everything you need to know about buying a house during a recession.

What is a recession?

There has been considerable debate over the definition of the term. By one very simple definition, a recession is when an economy experiences two consecutive quarters of negative growth — meaning GDP shrinks for two quarters in a row. That did happen in 2022. But most experts argue that a true recession requires more than just one indicator.

Other factors, including the rate of unemployment, income, consumer spending, retail sales and industrial production all factor into determining whether or not there is a recession. The official call is made by the National Bureau of Economic Research’s Business Cycle Dating Committee. That group takes into account many different factors, including revised GDP data that becomes available months after the initial data is released, to make an official determination.

Are we experiencing one now?

The National Bureau of Economic Research has not declared one. However, the better question might be not whether we are experiencing a recession right now, but whether one is looming. Bankrate’s most recent survey reports that economists put the odds of a U.S. recession over the next 12 months at 36 percent — a big jump from just 26 percent in the fourth quarter of 2024.

The housing market during a recession

Economic recessions — and the response to them by the Federal Reserve — can affect the housing market in a number of ways.

During a traditional recession, the Fed will usually lower interest rates. This creates an incentive for people to spend money and stimulate the economy. It also typically leads to more affordable mortgage rates, which leads to more opportunity for homebuyers.

But recently, the Fed has placed greater priority on defeating inflation — even if it requires slower economic growth. Higher rates typically make the cost of getting a mortgage more expensive. This, in turn, lowers the demand for homes by pushing the bounds of affordability.

The buyers who remain in the market during times of uncertainty like this often change what they are looking for — they may find themselves in the market for a different type of home than they would be otherwise.

“There is a direct correlation between how much home a borrower can afford and the prevailing rates,” says H. Jack Miller, president of Gelt Financial in Boca Raton, Florida. “Most people are buying as much home as they can afford.”

What happens to house prices in a recession?

While the cost of financing a home increases when interest rates are on the rise, home prices themselves may actually decline. “Usually, during a recession or periods of higher interest rates, demand slows and values of homes come down,” says Miller. That has not been the case in today’s market, though, which further complicates the matter.

Decreased demand typically means that fewer buyers are competing for the same inventory of homes. When that competition dries up, sellers lose the upper hand they enjoy in a robust seller’s market like we’ve seen in recent years. In this scenario, they would likely have to settle for less than their initial asking price — or at least less than they might have gotten in a more competitive market. And while that’s bad news for sellers, it can be good news for hopeful homebuyers.

Buying a house during a recession

Recessions often mean slower hiring, and even job loss. Obviously, this can make it harder to qualify for a mortgage and push buyers out of the market. But if you can afford to, it’s not necessarily a bad time to buy. In fact, if you remain financially stable, Miller argues a recession can actually be a good time to buy a home.

“Some people hold off on buying when this happens, but I think this is a mistake,” Miller says. “When rates go up and demand slows, buyers can usually get a better deal on the home they want.” You can always refinance when rates go back down again.

“Many people won’t buy a home when the economy is in bad shape,” says McBride. “Periods of very low mortgage rates that coincided with a weak economy saw a housing market that was comatose. But this also provided an opportunity for better deals for those who were willing to buy.”

With all of that in mind, let’s look at some of the major upsides and disadvantages to buying during a recession.

Bottom line

Buying a home during a recession can sometimes be a good idea — but only for people who are lucky enough to remain financially stable. If you’re thinking about buying during an economic downturn, be sure to enlist the help of an experienced local real estate agent. Not only do agents know their markets well, they will also work to get you the best deal in any given situation, including a recession.

FAQs

• Is it smart to buy a house during a recession?

  It can be. Recessions put many people in difficult financial circumstances, meaning they are less able to afford a new home and more likely to wait it out until conditions improve. This decreased demand means less competition for homes on the market, which in turn means sellers who are more open to lowering their prices. So buying during a recession, if you are financially able to, may get you a better deal.

• Are we in a housing recession?

  While the housing market has certainly cooled off, experts predict that there will not be a housing crash. There are five main reasons why: low inventory levels of available houses for sale, a lack of new-construction homebuilding, strong buyer demand among millennials and other demographic groups, strict lending standards and low foreclosure rates. If any of these factors were to be reversed, that could indicate a housing recession.

• Does the market favor homebuyers or sellers during a recession?

  A recession often leaves people in belt-tightening mode at the least, and in dire financial straits at worst. This is bad for both parties, as buyers might not be able to afford the purchase anymore, and sellers might not be able to fetch the price they’re hoping for, or even find a buyer at all. But generally, the market would favor buyers — at least, those with stable enough finances to remain in the market for a home. Fewer qualified buyers means less demand for the houses available, which typically leads to lower prices.