Many American businesses have been put on hold as the country deals with the worst pandemic in over one hundred years. As the states are deciding on the best strategy to slowly and safely reopen, the big question is: how long will it take the economy to fully recover?
Let’s look at the possibilities. Here are the three types of recoveries that follow most economic slowdowns (the definitions are from the financial glossary at Market Business News):
- V-shaped recovery: an economic period in which the economy experiences a sharp decline. However, it is also a brief period of decline. There is a clear bottom (called a trough by economists) which does not last long. Then there is a strong recovery.
- U-shaped recovery: when the decline is more gradual, i.e., less severe. The recovery that follows starts off moderately and then picks up speed. The recovery could last 12-24 months.
- L-shaped recovery: a steep economic decline followed by a long period with no growth. When an economy is in an L-shaped recovery, getting back to where it was before the decline will take years.
What type of recovery will we see this time?
No one can answer this question with one hundred percent certainty. However, most top financial services firms are calling for a V-shaped recovery. Goldman Sachs, Morgan Stanley, Wells Fargo Securities, and JP Morgan have all recently come out with projections that call for GDP to take a deep dive in the first half of the year but have a strong comeback in the second half.
Is there any research on recovery following a pandemic?
There have been two extensive studies done that look at how an economy has recovered from a pandemic in the past. Here are the conclusions they reached:
1. John Burns Consulting:
“Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices), and some very cutting-edge search engine analysis by our Information Management team showed the current slowdown is playing out similarly thus far.”
2. Harvard Business Review:
“It’s worth looking back at history to place the potential impact path of Covid-19 empirically. In fact, V-shapes monopolize the empirical landscape of prior shocks, including epidemics such as SARS, the 1968 H3N2 (“Hong Kong”) flu, 1958 H2N2 (“Asian”) flu, and 1918 Spanish flu.”
The research says we should experience a V-shaped recovery.
Does everyone agree it will be a ‘V’?
No. Some are concerned that, even when businesses are fully operational, the American public may be reluctant to jump right back in.
As Market Business News explains:
“In a typical V-shaped recovery, there is a huge shift in economic activity after the downturn and the trough. Growing consumer demand and spending drive the massive shift in economic activity.”
If consumer demand and spending do not come back as quickly as most expect it will, we may be heading for a U-shaped recovery.
In a message last Thursday, Chris Hyzy, Chief Investment Officer for Merrill and Bank of America Private Bank, agrees with other analysts who are expecting a resurgence in the economy later this year:
“We’re forecasting real economic growth of 30% for the U.S. in the 4th quarter of this year and 6.1% in 2021.”
His projection, however, calls for a U-shaped recovery based on concerns that consumers may not rush back in:
“After the steep plunge and bottoming out, a ‘U-shaped’ recovery should begin as consumer confidence slowly returns.”
The research indicates the recovery will be V-shaped, and most analysts agree. However, no one knows for sure how quickly Americans will get back to “normal” life. We will have to wait and see as the situation unfolds.
The Truth About Down Payments
If you’re planning to buy your first home, saving up for all the costs involved can feel daunting, especially when it comes to the down payment. That might be because you’ve heard you need to save 20% of the home’s price to put down. Well, that isn’t necessarily the case.
Unless specified by your loan type or lender, it’s typically not required to put 20% down. That means you could be closer to your homebuying dream than you realize.
As The Mortgage Reports says:
“Although putting down 20% to avoid mortgage insurance is wise if affordable, it’s a myth that this is always necessary. In fact, most people opt for a much lower down payment.”
According to the National Association of Realtors (NAR), the median down payment hasn’t been over 20% since 2005. In fact, for all homebuyers today it’s only 15%. And it’s even lower for first-time homebuyers at just 8% (see graph below):
The big takeaway? You may not need to save as much as you originally thought.
Learn About Resources That Can Help You Toward Your Goal
According to Down Payment Resource, there are also over 2,000 homebuyer assistance programs in the U.S., and many of them are intended to help with down payments.
With so many resources available to help with your down payment, the best way to find what you qualify for is by consulting with your loan officer or broker. They know about local grants and loan programs that may help you out.
Don’t let the misconception that you have to have 20% saved up hold you back. If you’re ready to become a homeowner, lean on the professionals to find resources that can help you make your dreams a reality. If you put your plans on hold until you’ve saved up 20%, it may actually cost you in the long run. According to U.S. Bank:
“. . . there are plenty of reasons why it might not be possible. For some, waiting to save up 20% for a down payment may “cost” too much time. While you’re saving for your down payment and paying rent, the price of your future home may go up.”
Home prices are expected to keep appreciating over the next 5 years – meaning your future home will likely go up in price the longer you wait. If you’re able to use these resources to buy now, that future price growth will help you build equity, rather than cost you more.
Keep in mind that you don’t always need a 20% down payment to buy a home. If you’re looking to make a move this year, reach out to a trusted real estate professional to start the conversation about your homebuying goals.
Strategic Tips for Buying Your First Home
Buying your first home is a big, exciting step and a major milestone that has the power to improve your life. As a first-time homebuyer, it’s a dream you can make come true, but there are some hurdles you’ll need to overcome in today’s housing market – specifically the limited supply of homes for sale and ongoing affordability challenges.
So, if you’re ready, willing, and able to buy your first home, here are three tips to help you turn your dream into a reality.
Save Money with First-Time Homebuyer Programs
Paying the initial costs of homeownership, like your down payment and closing costs, can feel a bit daunting. But there are many assistance programs for first-time homebuyers that can help you get a loan with little or no money upfront. According to Bankrate:
“. . . you might qualify for a first-time homebuyer loan or assistance. First-time buyer loans typically have more flexible requirements, such as a lower down payment and credit score. Many help buyers with closing costs and the down payment through grants and low-interest loans.”
To find out more, talk to your state’s housing authority or check out websites like Down Payment Resource.
Expand Your Options by Looking at Condos and Townhomes
Right now, there aren’t enough homes for sale for everyone who wants to buy one. That’s pushing home prices up and making affordability tight for buyers. One way to deal with that issue and find a home right now is to consider condos and townhomes. Realtor.com explains:
“For many newbies, it might just be a matter of making a shift toward something they can better afford—like a condo or townhome. These lower-cost homes have historically been a stepping stone for buyers looking for a less expensive alternative to a single-family home.”
One reason why they may be more affordable is because they’re often smaller. But they still give you the chance to get your foot in the door and achieve your goal of owning a home and building equity. And that equity can help fuel your move into a larger home later on if you decide you need something bigger in the future. Hannah Jones, Senior Economic Analyst at Realtor.com, says:
“Condos can help prospective homebuyers who perhaps have a smaller budget, but who are really determined to get a foothold in the market and start to accumulate some equity. It can be a really great entry point.”
Consider Pooling Your Resources To Buy a Multi-Generational Home
Another way to break into the market is by purchasing a home with friends or loved ones. That way you can split the cost of things like the mortgage and bills, to make it easier to afford a home. According to Money.com:
“Buying a home with another person has some obvious advantages in the mortgage department. With two incomes in the mix, buyers can likely qualify for a larger mortgage — a big help in today’s high-cost market.”
By exploring first-time homebuyer assistance, condos, townhomes, and multi-generational living, it can be easier to find and buy your first home. When you’re ready, connect with a local real estate agent.
Achieve Your Dream of Homeownership with Condos and Townhomes [INFOGRAPHIC]
- If you’re trying to buy a home but are having a hard time finding something in your budget, here’s something that can help: consider condos and townhomes.
- They may better fit your budget, can help you start building equity, and tend to require minimal upkeep and less maintenance.
- Looking at condos and townhomes can make it easier to find and buy a home. When you’re ready, connect with a local real estate agent.
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