Between inflation and recession, is it better to buy a home in 2023?

Both inflation and recession are significant factors that’ll always impact the global housing and real estate markets. Inflation on one end made its comeback during the pandemic and is accelerated by many global events like war, increase in energy costs, increased raw material shortages, etc., 

Recession is looming in many parts of the world and with predicted lower growth in India, triggered by lower consumption and changed economic realities aggravated the crisis further. What does this mean for those considering buying a home?

According to a report published by the IMARC group regarding the industry of the Indian real estate market and its forecast for 2022-27, the Indian real estate market is expected to grow at a CAGR of 9.06% between 2022-27. This means that your overall value of the property will definitely outperform any upcoming surge in inflation as it is a part of the modern economy and investors are hedging their bets on good quality assets irrespective of any inflation pressure. 

Experts say that it’s always good to buy a house during a recession especially if you are financially stable because the asset value will surely appreciate over a longer time horizon. However, there is an element of risk because a recession is never a period of good opportunities. An unpredictable business environment and unstable job markets may greatly hamper your ability to repay a home loan. So, it always comes down to your own financial situation such as the quantum of your savings, overall budget, job security, alternate or multiple sources of income, emergency funds, and even your family support system.

House prices during Inflation.

It’s obvious that home prices and real estate will surge during the time of inflation as the price of every commodity and utility tends to increase when inflation is rising. Home loan interest rates will also often increase during rising periods of inflation because of the steps taken by RBI to control inflation. 

However, real estate and home buying are always considered to be safe investments in India, and no amount of inflation uncertainty can affect the value of the global real estate and the housing market. 

Greater mortgage rates, higher material costs, and growing borrowing costs are typically associated with inflationary periods. These can only momentarily halt the growth; they cannot stop it. As we said, historically speaking, real estate investments have always outperformed the returns of other-class investments and assets, unlike any other investments, because here, the owner is the shape of the investment return. While economists debate whether the efforts of this spike in inflation are permanent or temporary, commercial property developers can be confident that their assets provide them with the necessary protection. Because there have been multiple studies done over the last few decades showing that private real estate and housing returns hold steady during inflationary periods.

The case for buying a new house 

When buying a home for the first time, there is always a sense of fear and confusion. A first-time home buyer often questions the market trends and whether it is a wise decision to buy a house during a recession. Asking yourself is my rent going down with each passing day?’ is a good way to see that while there may be macroeconomic indicators of the recession that the markets respond to, they seldom result in lowering costs. At best, the asset prices may remain stagnant for a brief period. With active government & central bank interventions, a recession is usually reversed within a few months.

When you buy a home, you are building wealth. Even if it’s a small start, the journey eventually leads to more assets. But how exactly do you do it? Let’s look at how you build wealth when you spend money on buying a new house

Renting versus accumulating equity:  As long as there isn't a housing crash, you increase the equity in your property with each mortgage payment. By paying rent each month, you are only increasing your landlord's equity.

Interest deduction on home loan: You can minimize your tax liability and free up funds for retirement and emergency savings when you buy a home since you are qualified to deduct your mortgage interest and property taxes.

Appreciation. When the worth of your home rises, your net worth rises as well. Home prices are rising in the current market, where there is a shortage of housing and borrowing rates are low, increasing your net worth and potential resale value.

Inflation & Increased cost of home loans 

When interest rates are high, borrowing becomes more expensive. It’s natural for you to worry about being able to service the EMI payments when the rates keep going up. But consider the fact that home loan repayments are long-term repayments. This means that even though your floating rate EMI went up recently, it could go down once the inflation falls and interest rates subside. Being able to pay some additional principal once in a while will ensure that the tenure of your EMI does not grow with inflation. 

The Smart choices when buying a home during a recession

Between spiraling prices and lower incomes, here are a few tips for you to consider when buying a home during an uncertain economic scenario.

  • Buy only when you have an Emergency fund or a support system
  • Don’t stretch your borrowings hoping for a possible increase in your income
  • Assume an increase in your EMI if you are borrowing for 20 years and assume an increase in tenure of repayment if your borrowing period is lower
  • Buy a property that’s likely to appreciate quicker, rather than a property that has a potential future growth.

Ambience Courtyard: The Courtyard of Goodness

It can be overwhelming to make a wise investment that will yield good returns in the future. Located in Manikonda, one of the best residential areas of Hyderabad, Ambience Courtyard is a gated community located close to Hitech City, the Financial District, and other emerging markets. It is the space you deserve at the location you desire. 

Built by Koncept Ambience and Sukhi Groups, Ambience Courtyard is ready for handover in the current year making it a safe investment that will save on your home rent payments. The location is set to appreciate faster with Metro connectivity accelerating growth on the Gachibowli - Shamshabad corridor, making Ambience courtyard one of the best-gated communities to invest in 2023 in Hyderabad.

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