Should First-Time Buyers Wait for a Recession or Buy Now? A Deep Dive into the 2025 Housing Market

How a Recession Impacts First-Time Home Buyers: What You Need to Know

Watch the full podcast episode below to hear Jeb Smith and Josh Lewis break it all down in real time. If you find it valuable, hit like, subscribe, and drop a comment with your housing market questions!

The Big Question: Is a Recession Good or Bad for First-Time Home Buyers?

When you hear "recession," your first thought might be fear: job losses, crashing markets, and economic uncertainty. But if you're a first-time home buyer, it's not all doom and gloom. In fact, recessions can sometimes create home buying opportunities—if you know where to look and how to prepare.

Jeb and Josh explore this from both sides:

• Pros of a recession: Lower mortgage rates, softening home prices
• Cons of a recession: Tighter lending standards, job market instability

Why This Matters:

• The housing market is highly localized. A national recession may not impact your city the same way.
• Timing the market rarely works. But understanding market forces can help you make smarter decisions.

The 5 Economic Signals You Should Be Watching

1. GDP Trends

The technical definition of a recession is two consecutive quarters of negative GDP growth. The Atlanta Fed's GDPNow model recently showed a potential -1.8% contraction—a red flag. But Jeb and Josh explain this doesn’t mean the economy is collapsing; it's a signal of slowing momentum.

Key Insight: Slower growth usually leads to lower interest rates, which can improve affordability for buyers.

Deeper Dive:

• GDP affects consumer spending, job creation, and business investment—all of which ripple into the housing market.
• In periods of low GDP growth, the Fed is more likely to cut interest rates to stimulate the economy.

2. Consumer Sentiment

The University of Michigan's sentiment index fell to 57.9 in March, the lowest since 2022. When confidence dips, big purchases get delayed—including homes.

What this means for buyers: Expect less competition, but only if your financial situation is stable.

Bonus Tip: Track consumer sentiment reports monthly. They can be a leading indicator of buyer and seller behavior in your local market.

3. The Wealth Effect

With the stock market cooling off and the Magnificent Seven stocks dropping, people feel less wealthy. This reduces buyer demand.

Jeb's Take: Don’t let the market trick you. If you're financially ready, a weaker stock market can actually give you an edge in housing.

Pro Insight:

• People often spend more when their portfolio is growing. When it shrinks, they tighten spending.
• If you're not heavily invested, this might be your moment to act while others pull back.

4. Market Volatility (VIX Index)

The VIX recently spiked above 20, signaling investor anxiety. This kind of volatility typically pushes investors into bonds, which lowers yields and drives mortgage rates down.

Relevance to Buyers:

• Mortgage rates track bond yields. When investors flee stocks and rush into bonds, rates drop.
• Volatility means opportunity, if you stay informed and pre-approved.

5. Trade Policy Uncertainty

The Baker-Bloom-Davis index hit an all-time high amid tariff talks and geopolitical noise. More uncertainty = slower growth = rate cuts more likely.

Why It Matters:

• Global markets are interconnected. What happens abroad can affect your mortgage rate at home.
• Increased uncertainty can delay homebuilding, worsening the housing supply crunch.

The Double-Edged Sword of Lower Rates

Lower interest rates make mortgages cheaper. But Josh warns they also invite more buyers back into the market, which can reignite bidding wars.

Key Thresholds to Watch:

• Rates below 5.8% = robust market
• Rates below 5% = hot market

Pro Tip: Get pre-approved now so you're ready when rates drop. Don’t wait until everyone else jumps in.

Scenario Example:
If you're approved for a $500,000 loan at 7% and rates drop to 5.5%, your purchasing power could increase by $50,000 or more. That can be the difference between buying your dream home or compromising.

Avoid the Trap:
Waiting for lower rates without preparing your finances can put you behind other buyers when the window opens. Build your strategy now.

Lending Standards Are Tightening

Recessions often lead to more cautious banks. Condos are already under stricter scrutiny. Jeb shares a story about a buyer whose deal collapsed mid-transaction due to a complex becoming "non-warrantable."

What Buyers Need to Know:

• Get educated on financing early
• Non-QM loans may be needed for certain properties
• Have a backup plan in case guidelines shift mid-process

Red Flags to Watch:

• Unusual HOA practices
• Deferred maintenance in condo complexes
• Litigation involving the building

Checklist for Buyers:

• Ask if the property is FHA, VA, and Fannie Mae approved
• Review condo questionnaires thoroughly
• Have your lender double-check the building's eligibility

Will Home Prices Crash in a Recession?

Despite recession fears, home prices usually remain stable or grow modestly. In California, prices are up year-over-year, though at a slower pace.

What keeps prices stable?

• Chronic housing shortage (we're still 4-6 million homes short nationally)
• Homeowners have record equity ($185K+ on average)
• No wave of foreclosures in sight

Josh's Forecast: Flat to modest price growth, NOT a crash.

Reality Check:

• National home price declines are rare, even in downturns
• Local dips may occur, especially in overbuilt or investor-heavy areas
• Rents often rise during recessions, making ownership more attractive

Action Plan for First-Time Home Buyers in 2025

Jeb and Josh emphasize preparation over prediction. Here’s how to get ahead:

Step 1: Talk to a Lender Now

• Spot credit issues
• Create a savings plan
• Strategize around employment/income

Questions to Ask Your Lender:

• What’s the best loan type for me?
• How much do I need to put down?
• What credit score should I target?

Step 2: Know Your Market

• Redfin & Zillow market reports
• Local MLS data via your real estate agent
• Open houses to understand pricing in person

Step 3: Understand Your Timeline

Situational Examples:

• You’re planning to get married and want to settle in before kids
• You’re relocating for work and want to lock in a fixed payment

Step 4: Build Your Team

• A strong team spots red flags early
• Professionals can negotiate better deals
• You’ll feel more confident navigating the process

Final Thoughts: Should You Wait or Buy Now?

There’s no one-size-fits-all answer. If your job is stable and your finances are in order, a recession could be your window to get in at a better rate with less competition. But if you're uncertain about your income or the market feels risky, it’s okay to wait and keep preparing.

Jeb's Advice: "Control what you can control. Get educated. Get prepared. The best decision is the one that's right for YOU."

Josh's Bottom Line: "Some of the best buying opportunities come when things feel uncertain. Just make sure you’re ready to act."

Reality Check:
You don’t need to “time” the bottom of the market to win. You just need to make a smart purchase you can afford to hold through any market cycle.

FAQ: Recession Home Buying Questions Answered

Q: Will mortgage rates drop in 2025?
A: Most analysts expect rates to slowly decline as inflation eases and the Fed shifts its stance. Jeb and Josh believe a rate in the mid-5% range is likely.

Q: Should I wait for a crash?
A: History shows home price crashes are rare. You're more likely to face a flat or slow-growth market than a collapse.

Q: Is it harder to get approved during a recession?
A: Possibly. Banks may tighten criteria. Getting pre-approved early and working with a lender who understands your situation is key.

Q: Are there advantages to buying during a downturn?
A: Yes! Less competition, more motivated sellers, and better deals on financing.