Pros And Cons Of Buying A House During A Crisis

5 min read By eCompareMo on April 29, 2020

Even the housing market is impacted by the unprecedented coronavirus disease, especially for countries that are heavily stricken by the COVID-19 pandemic.

If you are determined to buy a house in times of a crisis, what are the things you should know? Is it a good bet to take advantage of the low prices caused by the coronavirus outbreak and the enhanced community quarantine (ECQ)? Here’s a good look at things.

How COVID-19 affects the real estate market

In the US, survey results say that 48% of real estate agents noticed a decline of interested buyers due to the pandemic. Also, it shows that 45% of the buyers are tempted by the low mortgage rates but have not changed their buying habits.

In the Philippines, there is a stark contrast to the status of real estate before and during COVID-19.

Before the outbreak of the virus, condominium prices went up at an average of 18.9% every year nationwide. The number of single houses and apartments also increased an average of 10.2% by the end of 2019. This upward trend is caused by the housing needs of mainland Chinese working on Philippine Offshore Gaming Operators (POGOs) offices.

COVID-19 and the implementation of ECQ have caused the housing demands, office space, and tourist occupancy to drop from 71% to 35% at the end of 2019.

However, real estate remains an attractive investment in the long run. There are opportunities even in a weak market. And investors or buyers should capitalize on these before the market rebounds.

Advantages of buying a house during a recession

What are the opportunities in buying a house in a crisis? Here they are:

1. A house that has been in sale for a long time is worth a look. Since the market seems stagnant, the owner may give in to reducing the original price at a larger rate. It’s a deal that you may not usually get when the market is normal.
2. Because of the economic condition, buyers who are mainly curious and not dedicated to owning property have stopped dealing with sellers. This means that in the housing market, there is a lesser competition, giving you more options to look.
3. You should take advantage of this low period in the real estate market to negotiate with the home-sellers. When the quarantine is over, the market will likely skyrocket. The prices will be high again or even higher before the crisis struck.
4. ECQ has locked us inside our houses for months. If the house you live in does not make you feel secure and comfortable amid the coronavirus or practice of social distancing, consider buying one.

Disadvantages of buying a house in a crisis

Also, it’s better to know the drawbacks when buying a property in a recession. These are:

1. Among the wide choices of properties available, only a few of these might be a good deal. Some have a bad location, and others have extreme damages that may be costly to repair.
2. Buying a property in a good location will remain highly competitive. In every situation of the economy, people will prefer to live near business infrastructures, grocery stores, health centers, and schools. The proximity to these establishments builds value for homes.
3. Fixtures are attached to the properties and considered a form of real estate. However, some hard-put homeowners may remove or destroy these fixtures to be sold foryan additional fund.
4. Homes with the most affordable prices are likely those that need extensive repairs or worse, renovations. You can avoid buying these kinds of houses through the help of a professional appraiser.

Where to buy properties at a low price

A low price makes a property attractive. And this recession or crisis can magnify your interest to buy just to grab this chance while it’s present. Without careful decision making, it can lead you to regrets later on.

As a buyer, you need to understand what are these properties you are interested in and how these are placed in a sale. You should also know what will happen next after closing the deal.

In areas with poor economies, there are a lot of short sales, foreclosures, and real-estate owned (REO). Defaults on mortgages have an impact on the values of properties. Lots of foreclosure cases also affect nearby homes.

Here’s a brief explainer of the three kinds in which properties usually have the lowest price:

Short sale

This refers to the property or asset being sold by an investor who doesn’t own it. These borrowed securities are being sold due to the speculation of a short-term price drop in the market. The seller may own the security for a period but is mandated to return appropriate shares in the future.

Foreclosure

This is a legal process included in the mortgage contract between a lender and a homeowner. If the homeowner fails to give the full payment in his/her mortgage, then the lender takes the property as the collateral. The lender will place the property on public sale or auction.

REO

Real-estate owned is a foreclosed property but is never bought in the auction. The ownership of this property is transferred to the lender, which is commonly a bank or government agency. Then this will be sold via real estate agent or listing.

Do a title search

Before closing a deal, do a careful title search. Sellers might have unpaid debts attached to these properties. Make sure the property is free of liens filed by lending institutions, taxing offices, or contractors. You don’t buy properties with legal problems.

Set a budget on house repair

Through the help of an engineer or professional appraiser, find out how much you need to allocate for the repair and maintenance of the house. It is recommended to set between 1% and 4% of the price of the home. You should also create an emergency repair fund that is between 1% to 3% of the house value.

The bottomline

Owning a property can create passive income by renting it out to tenants during a crisis and latent profits by selling it at a higher rate thereafter. The market is sometimes fickle and cannot be predicted, although patterns show that housing prices immediately go up when the economy returns to normal. By having careful decisions, buying a house in times of pandemic is a good move.