How A Recession Can Affect Mortgage Rates

Nov 18, 2024

8-minute read

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Depiction of relocation during a recession, potentially associated with moving due to economic downturns.

If you’re looking to purchase or refinance a home, the goal is to pay as little as possible for the loan. It can be difficult to time the market because no one ever knows what’s going on, but it’s fair to say that if there’s an economic downturn, all kinds of tactics are employed to try to stimulate the economy. Therefore, it’s fair to ask, “Do mortgage rates go down in a recession?”

No one has a crystal ball, and we’re not predicting hard times ahead. Rather, this is intended to help you prepare for the mortgage market should a recession come.

What Is A Recession?

A recession is a downturn in economic activity that lasts for at least 3 months. It’s often marked by declines in production and employment. The trouble isn’t in the definition itself, so much as agreeing when it’s happening.

One general rule for determining recessions is that you’re in one when gross domestic product (GDP) – the economic output of a country – has fallen for two consecutive quarters. However, in the United States, the official arbiter is the National Bureau of Economic Research. While it looks at GDP, it also takes into account a variety of other data points.

Of course, the inherent problem with relying on any data is that by the time it’s compiled, the activity underlying the research has already happened. So by the time any determination has been made on being in a recessionary state, the economy has already been there for several months.

As the nation’s central bank, the Federal Reserve (Fed) wields monetary policy, together with fiscal policy controlled by the government, to keep economic growth going for as long as possible and minimize the impact of recessions.

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