The economic headlines are full of recession indicators, from tariffs and a potential trade war to wild stock market swings. With mortgage rates all over the map, some homebuyers are wondering if there might be a silver lining to a downturn — namely, lower mortgage rates and home prices.
I’ve worked in real estate for more than 20 years, and I’ve seen my share of market fluctuations, from boom times to full-blown crashes, like in 2008. When it comes to buying a home, the economy is just one factor to consider. Regardless of how messy the market is, there’s always an opportunity for certain homebuyers. If you’re financially ready, the current economic landscape could actually work in your favor.
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To help you make an informed decision, here’s what a recession could mean for mortgage rates, home prices and your homebuying timeline.
Are we in a recession now?
There are plenty of recession warning signs right now. Layoffs are picking up, the GDP is slowing and consumer confidence has dipped. Paychecks aren’t going as far, and retirement accounts are taking hits.
While less disposable income and tighter budgets point to a general slowdown in the economy, technically, we’re not in a recession yet. It would take two consecutive quarters of negative GDP growth to hit that definition. But for a lot of folks, it already feels like one.
Even if the inflation rate isn’t going up, the cost of everyday goods and services is still high, and budgets are getting hammered. When folks feel the squeeze every time they swipe a card at the grocery store, it shapes how they think about making huge purchases like a home.
Are interest rate cuts coming soon?
Borrowing costs have been expensive for the last several years, making households and businesses wary about taking out loans. The Federal Reserve will probably cut interest rates again later this year, eventually making financing cheaper.
But those cuts likely won’t come until early summer. The Fed is a bit stuck right now. The economy’s losing steam, and inflation is cooling, but not fast enough. The central bank is being cautious about shifting policy, especially with tariffs driving prices back up.
Though lower interest rates will eventually impact the housing market, the Fed doesn’t directly control mortgage rates. Mortgage rates move based on many factors, such as the bond market and investor expectations. Even when the Fed starts cutting rates again, don’t expect mortgage rates to drop like crazy. Many of those expected cuts are already priced into the market.
Will mortgage rates drop?
Mortgage rates often fall during an economic depression, as we saw recently in 2020 and earlier in 2008. Lower rates help boost the economy, and the Fed knows that.
But this time around, things are messier. There’s volatility everywhere. Even though rates could drop, they might also shoot back up with any good economic news. Like many experts in the real estate industry, I think average rates for a 30-year fixed mortgage will hover between 6.5% to 7.25% for most of 2025, with weekly jumps and dips in that range.
If you’re holding out for 4% or 5% mortgage rates, you may be waiting longer than you’d like. It’s going to take far more negative economic news to see rates fall significantly.
It’s also worth pointing out that your personal financial situation matters more than your interest rate. If you’ve got a solid stream of income and a long-term plan for paying off a home loan, waiting for a perfect rate might not be worth it.
Are home prices going to bottom out?
After years of steady growth, home prices could hypothetically crash if the bubble bursts. But in today’s housing market, real estate prices won’t likely go down in a big way.
Historically, home prices don’t actually fall much during recessions. The 2008 housing crash was the exception, not the rule. What we’ll probably see is slower appreciation or small dips in certain markets, especially in areas hit by higher insurance costs, taxes or natural disasters (Florida, Texas and Louisiana come to mind). We could see home prices drop in some areas of the country as supply goes up.
But nationwide, we’re still dealing with low inventory. Until that changes, it’s hard to see prices dropping dramatically. Plus, given high construction and labor costs, it’s clear home prices aren’t bottoming out anytime soon.
Is it cheaper to buy a home now?
If you’re financially stable, it could be cheaper to buy a home in a recession. You might find better deals, less competition and more negotiating power. But if lending tightens, getting a loan could get tougher. That’s something we’re already starting to see with condos and certain types of properties.
There’s also the “wealth effect.” When people feel wealthier, like when their stock portfolio or home value is up, they’re more confident making big purchases. But when those numbers start to slide, or there’s even a threat of job insecurity, even if nothing’s really changed day to day, people pull back. Economic turbulence affects buyer activity in a big way. If someone just lost $20,000 in their 401(k), they’re not rushing to get a new mortgage.
Should I wait to take out a mortgage loan?
The best time to buy a home is when it makes sense for you. If you’ve got a steady income and strong credit, and you’re ready to settle down, an economic downturn in the housing market could come with some advantages. It all depends on your personal situation.
Just don’t wait around for some magical “perfect time” to take out a mortgage. The green light most people are waiting for doesn’t exist. If you prepare, stay informed and work with the right team, you can make a smart move, no matter what the economy is doing.
Watch this: 6 Ways to Reduce Your Mortgage Interest Rate by 1% or More
