Should I buy a house during a recession?

Recessions are defined as when an economy contracts or shrinks for two quarters in a row. The technical definition doesn’t sound too scary, but the effects of a recession can be - people stop buying things, businesses stop investing and hiring, and some businesses will fail. Unemployment generally increases, which means more people losing jobs and fewer people spending.

During the most recent recession, interest rates have also been very high, which has meant Kiwis have had less disposable income after mortgage repayments. Meanwhile inflation has stuck around at elevated levels since 2021 and has only just decreased. It’s been tough.

All of these extra costs, high interest rates and economic uncertainty have kept property prices down. In fact, the national average asking price has decreased by around $130,000 from the peak to June 2024. 

That means that property in many areas around New Zealand is cheaper than it's been in years (and may be cheaper than it’ll ever be again). If home buyers and investors can afford to buy despite the tough economic conditions they may be able to secure a property for less. 

That means a smaller mortgage, and potentially more capital gains when the market recovers which could be as soon as next year. 

Buying property during a recession may also be easier from a practical perspective, with fewer buyers in the market and less competition. 

Buying a house during a recession isn’t all roses - there are a few risks involved:

• Job security: the main risk is that you’ll lose your job or your business will fail and you’ll be unable to make mortgage payments. It’s a good idea to consider this possibility and plan for it, especially if you’re working in an at risk sector like retail or hospitality.

• Challenges with tenants: if you’re buying a home as an investment keep in mind that your tenants are exposed to the same risks that you are. There’s a higher chance that they may lose their jobs and be unable to pay rent, which can be a costly and difficult situation to navigate as a landlord. 

• Banks may be overly cautious: because of current relatively high interest rates and economic uncertainty it may be difficult to get a mortgage. When assessing your application banks will use a stress testing rate - usually around 2-3% above your actual rate - to make sure you can afford mortgage repayments no matter what. 

Luckily there are ways to minimise these risks. The obvious one is to make sure you have three to six months of mortgage payments either saved up or ready to go in a revolving credit just in case something unexpected happens. The second is to talk to a mortgage broker - a good one will make getting a loan easier by using connections with lenders and offering impartial advice.