The current surge in inflation has prompted the Federal Reserve to increase mortgage rates. This has made economists and home buyers anxious. Soaring home prices and increasing mortgage rates have prompted prospective homebuyers to contemplate the decision of purchasing a house immediately or waiting to observe if house prices decline due to a potential housing market recession. 

It all began when in 2022, concerns arose about the possibility of a recession as inflation rose and the gross domestic product experienced a decline. To address these circumstances, the Federal Reserve implemented significant increases in interest rates. Although the primary aim was to combat inflation, it negatively impacted the economy, including the housing market.

Mortgage rates are not directly linked to interest rates, but generally, when one rises, the other tends to follow suit. Consequently, expensive mortgages bring a deceleration in the housing market, resulting in a decrease in the number of potential buyers.

So, will there be a housing market recession? Are these conditions advantageous for prospective homebuyers or do they present additional obstacles? This comprehensive guide provides valuable information on purchasing a house amidst a recession.

So, what is a recession?

what is a recession

The general consensus is that a recession occurs when an economy undergoes two consecutive quarters of negative growth, signifying a decline in gross domestic product for two consecutive quarters. 

However, most experts contend that we must consider multiple indicators such as unemployment rate, income levels, consumer spending, retail sales, and industrial production to determine the presence of a recession. The National Bureau of Economic Research examines these elements, including revised GDP data, to make an official assessment of whether the present conditions can qualify as a recession or not. 

Can the current situation be called a recession?

Interestingly, the nation’s GDP increased in the third and fourth quarters of 2022 despite consecutive drops in economic growth during the first and second quarters. This turned the assumption that the GDP growth rate alone is an official determination of a recession upside down. While there may be a likelihood of a recession this year in the US, the National Bureau of Economic Research has not, as of March 2023, declared a recession.

Recession and the housing market

The housing market can be influenced by economic recessions, as well as the actions taken by the Federal Reserve in response to them. In a conventional recession, mortgage rates usually decrease, making it more affordable for individuals to obtain loans for homes. Consequently, home prices may also decline due to a reduced number of qualified buyers and decreased competition. Also, individuals seeking to buy homes during a recession must possess a high credit score, strong financial stability, and a consistent income.

Typically, in a traditional recession, the Federal Reserve tends to lower interest rates to encourage spending and stimulate the economy. This generally results in more favorable mortgage rates, thereby increasing opportunities for potential homebuyers. 

But, the present market conditions are witnessing a rise in interest rates instead of a decrease. Elevated interest rates typically elevate the costs associated with securing a mortgage for home purchases.

During uncertain times such as the current situation, the profile of buyers in the market often undergoes change, or at the very least, their preferences may shift. They might find themselves searching for a different type of home compared to their original intentions.

Housing market recession and home values

housing market recession

While the cost of financing a home typically rises with increasing interest rates, the prices of homes themselves may actually decrease. According to experts in the real estate industry, during a recession or periods of higher interest rates, there is a slowdown in demand, leading to a decline in home values.

Reduced demand and a smaller pool of buyers result in less competition for available homes. As a result, sellers no longer have the advantage they enjoy during a seller’s market. Consequently, sellers may have to accept offers that are lower than their initial asking price. Although this may be unfavorable for sellers, it can present an opportunity for prospective homebuyers.

Is it a good idea to buy a house during a recession?

Recessions can frequently discourage potential buyers from entering the housing market. However, this hesitation does not necessarily stem from it being an unfavorable time to make a purchase. Surprisingly, if one has the financial means, a recession can present an opportune moment to buy a home. As interest rates increase and housing demand declines, buyers have a greater chance of a more advantageous home-buying deal.

With the combination of reduced mortgage rates and stabilization in national home prices, prospective buyers may find themselves receiving increased value for their investments during a recession.

Read more: Is now a good time to buy a house?

Pros and cons of buying a house in a recession?

There are some advantages and disadvantages of buying a house during a recession.


  • Reduced buyer competition for new homes.
  • Decrease in home prices.
  • Favorable interest rates for loans.


  • Enhanced lending criteria.
  • Reduced choices because of limited housing inventory.
  • Uncertainty in the economy.

What is the next step for prospective homebuyers?

what to expect from housing market

Purchasing a single-family home amidst a recession can prove advantageous, albeit only for individuals fortunate enough to maintain their financial security. If you are contemplating buying a piece of property, you must engage the services of a skilled real estate agent who possesses extensive knowledge of the markets and expertise to secure the most favorable terms for you. Even in challenging times such as a housing market recession.


Does buying a house in a recession cost you less?

A decreased housing demand, as witnessed during a recession, means fewer buyers for new houses on the market. And, home sellers are often more open to lowering their prices in such a situation.

How to identify a recession?

A recession is a phase of economic downturn. It’s characterized by an increase in unemployment, a stock market dip, home prices drop, and an unstable real estate market.

What are the obvious signs of a housing crash?

A housing crash is when there’s a low inventory of houses for sale, almost no new construction, and strict loan lending standards.

Are we heading for a housing market recession 2023?

According to experts, there have been signs of slowing activities in the economy. The chance of a housing market recession cannot be completely ruled out. 

Does the housing market recession favor homebuyers or sellers?

A recession often leaves people in a financial crisis. A buyer might not be able to afford a house anymore. And, a seller may not be able to get a good home sale price. Sometimes, even find a good buyer. That said, a recession generally favors buyers — those with a stable financial situation as home prices fall significantly.

How long does an economic recession last, on average?

In the past fifty years, recessions have lasted anywhere from two months to 18 months – depending on the prevailing market conditions and reasons for the recession.

How to prepare yourself for a housing market recession? was last modified: June 22nd, 2023 by Ramona Sinha
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