Should You Sell Your House During A Recession?

It’s an interesting question, but should you sell your house during a recession? There are no easy answers but here we look at issues to be aware of to ensure home selling and buying success.

While most of us believe there’s ‘no place like home’, the housing market is still active and people will be moving for work purposes or even buying to get onto the housing ladder.

However, once a recession hits, peoples situation and attitude to the housing market can change quickly.

Recessions usually mean that along with massive unemployment and business failures, there will be ever-growing job uncertainty and wage cuts.

As a result, more of us will be increasingly cautious about buying a home – which is one of the biggest investments we ever make.

Can you sell a house during a recession?

Obviously, you can sell a house during a recession but there are two issues to consider:

• You may not get the price you are hoping for because buyers are scarce;
• You may not find another home because sellers don’t want to take the risk.

It’s also worth appreciating that during a recession, interest rates are usually low, so it is cheaper to access a mortgage.

However, if you need to sell a home fast, then finding a buyer can prove difficult though there will still be investors searching and first-time buyers too.

When we bought our first home during the 2008 recession, the seller had already reduced the asking price from £125,000 to £115,000 when we viewed it. However, given the lack of demand in the market and uncertainty about how long the recession would last, they were still open to offers.

In the end, we secured it for £97,500, that’s a discount of £27,500 (22%) simply because of the uncertainty and lack of demand the recession had created.

Therefore, if you want to sell a house during a recession, you have to be prepared that, in order to achieve a sale, you may have to be flexible on asking price.

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Is a recession a good time to sell a house?

In answer to the question, ‘Is a recession a good time to sell a house?’, a lot depends on your personal circumstances, such as where you live and if you can’t afford to pay your mortgage.

The bottom line about whether a recession is a good time to sell is whether you achieve your asking price and actually find a buyer.

One thing to keep in mind is that if you’re moving to a new home of similar value, the impact on the asking price will probably cancel itself out. However, if you’re buying a more expensive house you may benefit from moving during a recession. If you’re buying a cheaper house, you may find yourself worse off.

That’s because a 10% fall in property prices is a bigger drop on higher value homes in monetary terms than it is on lower value homes. Though keep in mind recessions also usually make mortgages harder to get and more expensive to use.

Regardless of the economic situation, the UK’s property sector always has a cohort of buyers who are keen to buy and sellers who are keen to sell a home.

However, since a recession will put pressure on house prices, you need to be realistic when pricing your home and be prepared to negotiate.

Why it is difficult to sell a home during a recession?

Among the reasons as to why it is difficult to sell a home during a recession includes the fact there is a scarcity of buyers.

With people worrying about jobs or even losing their job, means there are fewer buyers and fewer buyers mean lower prices.

An analysis by Visionary Finance found that in the last recession, property values dropped over 60 months by 20% in the year to June 2009.

Also, it took around six years for house prices to reach their pre-crash prices – and, worryingly, in some parts the UK these prices have not yet recovered.

This means that a potential buyer of a house needs to factor in what the potential fall in prices may be which will erode equity.

The Royal Institute of Chartered Surveyors found that:

• One in three of its members believe prices will fall by at least 4%;
• 40% said prices will fall by more than 4%.

The other issue to be considered when selling a house in a recession, is the prospect of accessing a mortgage.

During the last credit crunch, the criteria for accessing a mortgage were tightened so you should expect banks to be less inclined to lend at the same level they have been doing in recent years.

How much do house prices drop in a recession?

Leading on from the last question, ‘How much do house prices drop in a recession?’ is an interesting conundrum.

If we all knew the answer to this question, then we would know where to invest in new property but few of us do.

Instead, we rely on property experts who have years of experience in dealing with economic ups and downs.

Land prices during a recession

In their latest Residential Development Land Index, Knight Frank highlight that the average land price in prime central London locations has fallen by 6% in the second quarter of 2020.

They say that after years of strong growth, their index is returning to 2013’s price levels.

Looking at greenfield development land prices, they dropped year-on-year by 8.6% to the end of June.

However, the market remains positive and agents say they are not seeing distress among landowners which will prevent substantial price discounting in a bid to find a sale.

It’s also worth appreciating that there is still a huge demand for housing in the UK and with it, there is a big demand for land to build on.

This means that land prices may well remain resilient unless the recession is particularly severe.

Sell a house during a recession

There is no easy answer to predicting house prices in a UK recession because no-one has a crystal ball.

However, it’s always worth dealing with experienced estate agents and mortgage brokers when you need to sell up and move but be prepared to:

• Negotiate a lower selling price;
• Negotiate a lower buying price on the property you are moving into.

Remember, buying property should not be viewed as a short-term undertaking, you will need to sit tight for what could be a long-term recovery and enjoy the profitability your new home will (eventually) bring.

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