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The stock market has taken a beating over the past two weeks, so much so that we've officially hit bear market territory as of this writing. A bear market, if you're not familiar with the term, is when stock values drop by at least 20% from a recent high and stay at that level a while -- usually a few months or longer. And while bear markets and full-blown economic recessions don't always go hand in hand, the former can easily trigger the latter.
That's not great news if you're looking to make a substantial financial move in the coming weeks, like buying a home. The question is, should the recent stock market downturn -- and fears of a recession -- drive you to rethink that decision?
The dangers of buying property during a recession
The fact that the stock market is down -- a lot -- shouldn't necessarily influence your homebuying decision, because the reality is that you should be paying for that home with cash saved elsewhere. If you're planning to tap your investments for your home's down payment, then it's pretty much a no-brainer -- now's the wrong time to do that, because you're apt to take serious losses.
But ideally, the money you have earmarked for a home purchase won't be sitting in stocks; it'll be sitting in cash. As such, you don't necessarily need to delay your home purchase despite the market volatility that abounds.
That said, if you're going to move forward with buying a home in these uncertain times, you'll need to prepare for the possibility of a recession on the horizon. As such, before you buy, be sure you fulfill the following:
1. Have a healthy emergency fund. You should have at least six months' worth of living expenses (including your new mortgage payment, property taxes, insurance, and maintenance costs) in emergency savings form after making your home's down payment. That way, if something happens with your job, you'll have a means of paying your bills, home expenses included.
2. Have a stable job. You can't predict what'll happen a few months from now, but if you currently have a steady paycheck at a company that's faring well financially, you're in pretty good shape to buy. But if you're in a job where your hours vary already, and your company has been struggling, you may want to hold off.
3. Have strong credit. The good news is that if you're buying a home today, you have a prime opportunity to snag an affordable mortgage, with rates being historically low. But you'll need good credit to qualify for the most competitive rates out there.
Buying a home can be a scary prospect in general. Throw in a period of extreme market turmoil like we haven't seen in over a decade, and it could be enough to make you rethink your decision. Ultimately, if you're prepared for homeownership, a stock market downturn shouldn't change things. But if you're at all uneasy about becoming a homeowner in the near future, hold off a bit. During these stressful times, you don't need another thing to feel anxious about.
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