We have all been taught to fear the dreaded R-word–recession. But what if investing during a recession is actually a good idea? It might not be the most popular idea, but it could be a genius investment for you.
Let’s take a closer look at why buying during a recession might be a good idea.
First of All, is Canada in a Recession?
At the time of this writing, Canada is technically not in a recession. However, many expert economists seem to think we are headed that way. The COVID-19 pandemic and the resulting low-interest rates spurred a period of intense growth for a lot of industries. However, this intensity led to an overheating market that resulted in record levels of inflation as well as labour and supply shortages.
The Bank of Canada’s decision to increase interest rates was needed to stem inflation. With that being said, the rising interest rates will also cool Canadian growth, likely resulting in a short recession.
But it’s not all doom and gloom, reports are currently saying that Canada’s unemployment rate is at a record-low 4.9%. If we are hit with a recession, experts are saying it will likely be “moderate and short-lived” compared to past recessions, and will likely only affect people as the Bank of Canada returns interest rates to a neutral level and inflation comes back down.
Looking for more resources to help you in the coming months? Read some of these blogs right here to stay updated:
- Will the Canadian Real Estate Market be Able to Survive Another Interest Rate Hike?
- The Key to Selling Guelph Real Estate in a Recession
- The 5 Best Cities in Ontario for Recession-Proof Properties
So Why Would Buying in a Recession Be A Good Idea?
If the pandemic taught us anything, it’s that a period of uncertainty doesn’t always mean it’s time to hunker down and time the market. Most homebuyers took advantage of the changing market conditions in 2020 to get into the housing market. And the same principles can be applied to a recession.
Are you thinking about making a real estate investment this year? Here’s how an experienced Guelph real estate team can help. Read more.
Prices are Down, But They Won’t Always Be
A new report from the Canadian Real Estate Association states that the Canadian housing market is returning to pre-pandemic levels. Month-over-month sales and home prices across the country have seen a dip.
But, as experienced real estate investors, we know that real estate is typically a “slow burn” investment that almost always appreciates. In fact, looking at trends over the past 50 years, there have only been a few instances where prices dropped.
They almost always trend upwards. This means right now when prices are temporarily in the decline, is a great time to buy real estate.
Read more about how the shifting real estate market is impacting buyers, sellers, and investors in Guelph here:
- The Benefits of this Changing Market for Upsizers
- Is Now a Good Time to Buy an Investment Property in Guelph
- How Downsizers in Guelph Can Capitalize on the Changing Market
Interest Rates are Still On the Rise
The Bank of Canada has all but confirmed that more interest rate increases are on the way. The goal is to reach a “neutral” 3-3.5% Policy Rate. As interest rates increase, mortgage rates will go up too.
This means that the value you can get pre-approved for will go down as interest rates go up. Essentially, the amount of “house” you can afford will decline. Right now, we have an exciting (but temporary) opportunity when the prices have stagnated and the rates have not yet gone up. The window of getting a lower interest rate and lower price on a home is beginning to close.
Will a shifting real estate market help millennial buyers? Find out in our blog post about it here.
Sellers are Open to Negotiation
We have been in one of the most competitive seller’s markets in history for the past several years, culminating in one of the hottest years we have ever seen during the pandemic. However, with interest rates rising, and the fall market on the horizon, we have seen the market turn from a hot seller’s market to a more balanced market.
This means that the number of buyers in the market is close to meeting the number of available homes for sale. In a balanced market, it’s common to see more negotiations. Homes do not always sell in multiple offer scenarios, and sellers are typically more open to negotiating on things like conditions and prices.
For a buyer, this is a great time to make a purchase because it means you can really do research and your due diligence before buying a home. Home inspections are coming back, and firm offers are not the norm anymore.
Conditional offers are making a comeback! Here are a few blog articles to learn more about home offers:
There Are More Renters in the Market
It’s a little-known fact, but when interest rates go up, the rental market also goes up. Rising interest rates and prices might price some people out of the market, creating more renters. As a real estate investor, this is great news, as it means your investment will likely be protected, and you will likely be able to find great tenants to occupy your property.
At GoWylde Real Estate, we have helped countless investors with their rental properties. Check out some of these related blog posts to learn more:
- How to Choose the Best Neighbourhood for a Student Rental
- Questions to Ask Potential Property Management Firms
- How to Generate Passive Income from Your Primary Residence
Real Estate is Almost Always a Good Investment
As we mentioned above, real estate is certainly not a fast investment where you can buy and then turn a profit immediately. It’s more of a buy-and-hold investment as it appreciates over the years.
As you build equity in the home too, you have the opportunity to leverage that equity into new investments and create a balanced and sustainable investment portfolio.
Should you invest in real estate or stocks? Read our blog post here to find out.
Unlike the stock market, you can’t “time” the real estate market. And the best time to buy real estate is 5 years ago. But the second best time to invest is right now. Getting into the market as soon as you possibly can is always a solid strategy since as soon as you invest, you will begin to build equity.