Should You Sell Your House During A Recession?

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, economic experts are predicting that after the Covid-19 lockdown, the UK is about to enter a serious recession.

This means 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.

House prices falling

The last recession in 2008 saw house prices falling, which is good news for buyers who can afford to buy but not such good news for sellers.

And it doesn’t bode well that the Nationwide House Price Index registered its biggest fall for 11 years in May. That’s when house prices fell by 1.7% over April’s figure.

After lockdown restrictions were lifted, the UK’s housing market came to life with one property website, Rightmove, stating they had seen a huge rise in the number of people looking for homes.

However, these people appear to be looking for properties further away from city and town centres – and they want a large garden and space for a potential home office.

People seem to be changing their tastes for houses. A garden is now a priority.

It’s worth bearing in mind that while times are changing rapidly, there are two things to appreciate:

  • Property investment may still be a wise undertaking if property prices fall;
  • Property should be seen as a long-term investment that will offer a decent return.

Secondly, despite the ups and downs of the UK economy, bricks and mortar have remained an unchanging and solid investment opportunity for generations of Brits.

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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.

There are buyers around in a recession, but many will be aware that – according to real estate firm Knight Frank – property prices have fallen by 5% since the lockdown was introduced.

And in even worse news, the experts predict that house prices could fall by another 2% before the end of 2020 before we see prices recovering in 2021.

A lot of these predictions are reliant on how severe a recession may strike – an issue underlined by Lloyds Bank who predicts a ‘severe scenario’ for property prices that could fall by 10% by Christmas.

Lloyds predicts the prices could drop by 30% over the next three years and the Royal Institution of Chartered Surveyors (RICS) is not predicting a property price recovery until Easter 2021 – at the earliest.

Is a recession a good time to sell a house?

It all depends on how you are managing your life, but recession can actually be 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.

And while property prices appear to be recovering, this may only be a short-term blip.

For example, Rightmove says that the fastest-moving houses are selling within 60 days after it has gone on sale.

In a bid to help prop up the housing sector, the Government introduced a stamp duty holiday on those properties worth up to £500,000. This means a house buyer could save up to £15,000 on their stamp duty bill.

The Rightmove analysis also highlights that homes worth up to half-a-million are struggling to sell with South Kensington properties being the least likely to sell in the UK.

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.

And 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.

Property values tend to decrease in a recession as people switch priorities. This means less buyers and 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.

And while experts are predicting that prices will fall because a recession appears to be inevitable, the data highlights that the pent-up demand from the Covid-19 lockdown has led to house prices rising over the short term.

However, there is a caveat here, and that’s because 1.8 million people have accessed the Government’s scheme for a mortgage holiday.

When this scheme ends, many will need to pay their mortgage once more or may even face the prospect of losing their job.

Also, the Visionary Finance report highlights that as house prices are expected to crash, there have been reports of buyers demanding that sellers offer huge discounts before they commit to buying a property.

Land prices during a recession

It seems that, although land prices also fall during a recession, they have a better performance than houses.

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

Essentially, for those who want to sell a house during a recession, will need to appreciate that while buyers become scarce and property prices come under threat, the Covid-19 situation also means sellers need to consider:

  • Social distancing means you may not meet the buyer;
  • Buyers are increasingly using video walkarounds;
  • The market is heading towards its traditional lull after the summer sales frenzy ends;
  • Brexit may yet have an effect on house prices.

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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