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What Happens To House Prices In A Recession?

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It is a natural consequence for house prices to decline during a recession. We can observe this in the 2008 financial crisis and the early 1990s recession. It is predicted that we will be hit by another recession before the end of 2020 or early 2021 due to the Coronavirus Pandemic.

It may be beneficial to sell a property before a recession if you can accurately anticipate when it will occur. Experts suggest that people will choose to rent or even stay with family members rather than buy a home during an economic downturn, which will drive down property prices.

Homeowners, potential sellers and buyers may wonder what will happen to house prices during a recession. As the coronavirus pandemic nears an end, will a housing market crash occur?

The effects of a recession on the housing market are generally predictable, but it is unclear whether homeowners should sell their property before a recession.

Will this recession be as deep as the 2008 recession? What kind of recession will we experience – a property recession, an economic recession, a financial recession or a business recession?

Unfortunately, it is difficult to guess how house prices will be affected by a recession due to a lack of new pricing information. This has led many to consult with cash house buyers to get a quick sale and complete the process before the value drops.

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What Is A Recession?

One common question is: Are we in a recession right now? To answer that, we must first understand what a recession is.

Generally, when a country’s economy grows, its citizens become slightly wealthier due to the rise in the value of goods and services reflected in the Gross Domestic Product (GDP). If this value drops, we enter a recession.

If it continues for several quarters, it is considered a recession. A longer or more severe recession is referred to as a depression.

Recessions tend to lead to fewer available jobs, reduced wages, lower dividends for shareholders, and less tax revenue for the government.

As a result, the government must cut benefits, public services, and public sector salaries, which has a domino effect on the housing market. So, are we in a recession yet?

How Does A Recession Effect House Prices?

With the Western world seeing GDP decline in the first quarter of 2020, and retail and manufacturing sectors experiencing difficulties, a recession appears to be on the horizon and is likely to be confirmed before the end of the year.

The Office for National Statistics reported a two per cent decrease in UK GDP from January to March, followed by an unprecedented 20.4 per cent decrease in April whilst the country was in lockdown.

In mid-June, estate agents were allowed to resume operations, and non-essential shops were opened shortly after. It will take some time to gauge the effects of the recession on the housing market, with recovery unlikely to come soon.

To bolster the housing sector, the government has extended its mortgage holiday period by an additional three months, so anyone having trouble making payments can wait until September. However, this may not be enough to stop the recession.

Experts suggest that the conditions are in place for a market crash later in the year. The large amount of jobs lost or furloughed implies that many businesses will close down permanently, which is bad news for the property market.

People are also unsure of their financial stability, making them hesitant to commit to such a large investment. The only thing preventing a deep recession or depression is the historically low-interest rate.

What Happens To House Prices In A Recession
Generally, when a country's economy grows, its citizens become slightly wealthier due to the rise in the value of goods and services reflected in the Gross Domestic Product (GDP). If this value drops, we enter a recession.

When Will The Next Recession Be?

Some economists believe that if the Bank of England continues to inject money into the economy, it will cause inflation to rise, and interest rates to increase to try and keep it at 2%.

This would have a disastrous effect on the housing market, as people would find it difficult to afford their current debts, let alone any additional expenditure.

When the recession officially ended in the third quarter of 1991, it took five and a quarter years for house prices to once again reach their pre-peak level.

History has taught us that when the economy weakens, house prices tend to drop, which leads to further unemployment and higher borrowing costs, forcing even more people to sell.

Overall, house prices have seen a positive trend over the last 50 years. Yet, there have been some major dips, and shortly we can expect a smaller growth rate compared to the long-term result.

Therefore, now may be a good time to sell, as we are unlikely to see an increase in forced sellers shortly. Mortgage rates are at their lowest, and government support for businesses has meant that house prices are not likely to move significantly shortly.

Is A Recession A Good Time To Sell A Property?

A recession isn’t the ideal moment to sell a property. It’s best to do so before a recession hits if you can anticipate when that may be. Nobel Prize-winning economist Robert Shiller predicted a recession in 2020, before the coronavirus pandemic began, and suggested that this would bring a buyer’s market, not a seller’s.

Shiller believes that people will opt to rent or even stay in their current home, instead of buying during a recession, so buyers that are present will be able to decrease the price of property.

American economist Daryl Fairweather states: “When the economy is weak, more people are trying to sell their homes than people are trying to buy them. This means that homebuyers have more options and more negotiating power during a recession.

Consequently, dream homes tend to retain more of their value. During a recession, homebuyers don’t need to settle for a condo or a home with fewer bedrooms or only one story. So, those less desirable homes will drop in value more than a single-family home with two stories and multiple bedrooms.”

How To Sell Your Property During A Recession?

The housing market may appear to be a tough nut to crack for sellers in the event of a recession, but an analysis of recession history suggests that this recession may not be as severe as the 2008 recession.

We won’t know the full extent of the effects of the coronavirus lockdown until it is lifted, the economy is running again, and we have a better idea of how it has impacted prices.

As long as government measures maintain support for businesses, the prices should stay the same as they were in March. However, if prices start to drop, it could lead to a decrease in market activity.

Experts claim that there is a large cushion of housing equity, which is about five times greater than the £1 trillion held in outstanding mortgages. This means that the chances of experiencing negative equity are low, especially when 15% deposits are the norm.

According to Stephen Moss, a peer-to-peer lending expert, “The current state of the market may be concerning for many, but for now, it is in a kind of limbo. We won’t know the effects of the pandemic until normality resumes.

The real issue will be if the national lockdown continues for a prolonged period, which could lead to a recession. This could cause property prices to drop, especially since the market conditions are similar to those of the previous recession.

 A decrease of 10% or more is possible. Furthermore, it could take until 2025 or longer for prices to recover to their current levels.”

If you’re worried about selling your house quickly during a recession, cash house buyers may be the best option.

Property Saviour offers a guaranteed sale of any home, regardless of the circumstances or condition. Contact us today to find out more about the possibilities.

With Property Saviour, you can benefit from a super quick exchange and completion service that will stop your debt from increasing.

We can also help you avoid agents’ fees, estate agents’ charges, solicitors’ fees, clearance costs, utility charges, mortgage payments, and cosmetic repair costs. Get in touch with us for a valuation and to avoid the risk of your home being repossessed.

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