Should You Sell Your House Before a Recession Hits?

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As the economy slowly reopens and we begin to assess the damage caused by COVID-19, everyone is watching the numbers. A record 20.5 million Americans lost their jobs in April, the stock market plummeted more than 20% in mid-March, and as of May 11, the government had sent out $218 billion in stimulus checks. But if you’re a homeowner, particularly one who had been planning to sell, you’re no doubt keeping a close eye on home prices.

And you’re likely wondering if you should hurry up and sell before a recession hits — or hold off until some semblance of normalcy has returned. As with most decisions in real estate, the answer won’t be the same for everyone, and there are a lot of factors to take into account.

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Signs that a recession is coming

These days, you can’t turn on the TV or click on a news website without coming across the spooky “R-word” — recession. Many analysts believe a recession is on the way, and some claim we’re already in the midst of one.

It’s normal for the economy to expand and contract over an extended period of time. Whether caused by a pandemic or a mortgage crisis, the contractions (recessions) can wreak financial havoc, often causing businesses to shut down, unemployment to spike and investment portfolios to plummet. But they’re temporary — it might take a matter of months or years, but ultimately the economy will begin another expansion.

The National Bureau of Economic Research (NBER) is the entity that officially declares when a recession is in effect. The NBER defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales.” It remains to be seen when or if the organization will declare that the economy is officially in a recession in the wake of COVID-19.

How a recession could impact the housing market

The sweeping effects of a recession impact every aspect of the economy, including home prices. But the impact may manifest differently across various real estate markets.

Early signs of resilience

Top-selling real estate agent Joanne McCoy says that so far, her Lincoln, Nebraska market has been relatively sheltered from the effects. “We haven’t experienced the dramatic price drops seen on the coasts or bigger markets,” she notes. “We might see a 3% to 5% drop, where in good years, we might see an appreciation of 5% to 10%.”

McCoy doesn’t believe the coronavirus crisis will cause a widespread housing crash. Even during periods of economic uncertainty, she predicts people will continue to seek out the benefits of homeownership.

Kevin Kendrick, a top agent in Orlando, Florida, has seen a slowdown in the market, but not a significant dip in listings. “People are still buying and selling homes,” he says.

“We’ve seen more of a reduction in physical showings than a reduction in offers.”

According to some reports, home prices have actually increased during the crisis, amid a shrinking supply of homes and a drop in sales. According to the National Association of Realtors (NAR), the average home price increased by 8% from last year, reaching $280,600 as of March.

Uncertainty about the future

However, Jordan Shanbrom, finance expert and life insurance specialist, notes that with such a large number of people being unemployed or having their wages reduced, there will likely be a dip in the number of qualified loans to buy homes, which may hurt buyer demand — and without demand, home prices will drop.

“Along with this, we also have the issue of the economy being shut down for a long period of time and having major businesses shut down permanently,” Shanbrom notes. “This means a lot of individuals who would have been interested in homeownership may abandon the idea, as they will either need to go get a job or start new businesses. Many will decide to rent during this process, and home purchases will suffer as a result.”

But there are glimmers of optimism. A report from First American Financial Services claims that a recession isn’t likely to cause a major housing crash. “The U.S. housing market has weathered all other recessions since 1980,” notes Odeta Kushi, the author of the report. “With the exception of the Great Recession, house price appreciation hardly skipped a beat, and year-over-year existing-home sales growth barely declined in all the other previous recessions in the last 40 years.”

A house sold before a recession.
Source: (fran hogan / Unsplash)

Should you sell before the recession or hold off?

If you’ve been considering putting your house on the market, you might be wondering if an impending recession could or should weigh into your decision — and you’re not alone.

According to HomeLight’s most recent survey data as of the week of May 13, just over half of real estate agents say business is slower than normal, but that deals are still happening. Nearly a quarter report that they are actually seeing growth in their business, while 20% say their sales have remained about the same as they were before the pandemic. Only 5% reported that their business has come to a standstill.

A survey by the National Association of Realtors in April of 2020, 41% reported that sellers are delaying the sale of their homes for a couple of months, and another 7% are deciding not to sell indefinitely. Just over 30% say that sellers are continuing with the sale process, with nearly half of those sellers opting for contactless methods.

Owen Dashner, a real estate investor and partner with Red Ladder Property Solutions, says that while home prices overall have not yet been significantly impacted by the pandemic in most markets, a housing market decline is likely coming, and it could be severe once the reality of closed businesses and job losses take hold.

So is it best to act quickly and list before prices drop — or should you wait until the economy settles down a bit?

The short answer: It depends.

As is the case even during an economically stable time, there are many factors to consider when choosing to list your home, and no two situations are the same.

Reasons you might want to sell now

  • You absolutely have to.
    As McCoy points out, certain life circumstances — such as a divorce or a job transfer — could add a sense of urgency to the sale, and you may not have the option to wait until the market stabilizes.
  • You anticipate a lot of interest in your home.
    If you own a type of home that’s in high demand and there aren’t a lot of competing properties, you’re more likely to sell at or even above market price. In that case, it may be a good idea to list, McCoy says.
  • You have a lot of equity in your home.
    In this case, it might be prudent to liquidate that equity and invest it somewhere else to have as a nest egg, says McCoy. “This is particularly common with people who are close to retirement and ready to downsize,” she notes.
  • You can no longer afford your home.
    By selling now before the recession, Dashner points out that you could potentially maximize the amount of profit potential due to the still-low inventory. “Plus, historically low interest rates would allow for much lower payments on a new potential purchase,” he adds.
  • Your home needs extensive repairs.
    Traditional buyers with bank financing are less likely to take a chance on a house that needs work during a recession, notes Ryan Dosenberry, a real estate investor in West Michigan. “Consumer spending generally takes a hit during a recession, and most buyers will not want to make expensive repairs on their next home purchase.

Reasons you might want to delay selling

  • You have no or low equity in your home.
    In this case, it might be wise to hunker down and wait until you’ve built up a little more equity and the economy has stabilized. “After taking out commissions, closing costs and other fees, if you’ll still have to bring money to the table and that will be a challenge, you may want to wait to sell or rent out your home instead,” says Kendrick.
  • You’re locked into good interest rates.
    “For people who are comfortable in their homes at a good mortgage rate and don’t absolutely have to move, I would anticipate that many will opt to stay in their homes for now,” McCoy predicts. This also applies if you’ve recently refinanced your home to take advantage of the lower rates.
  • You’ve lost your job or have unstable employment.
    If you’re one of the many who is facing job loss or reduction, it might be better to stay in your current home and perhaps take advantage of the skipped mortgage payments that many lenders and loan servicers are currently offering.The forbearance process allows you to pause your payments and then pick up where you left off after a set period of time. Remember, though, that forbearance is not loan forgiveness. After the forbearance period is wrapped, you’ll need to review your options to pay back what you owe either with a lump sum, repayment plan, or loan modification.
  • You won’t make much from the sale.
    “In this scenario, it may be a better idea to hunker down and work on saving as much money or reducing as many expenses as possible to ensure that you’re ready when the market rebounds and exits the recession,” says Shanbrom. “A buy and hold method would be safest, as long as you can afford your monthly mortgage payment.”

The final word

With unemployment at record highs, many businesses still shuttered, and a stock market that seems to be on a long-term roller coaster ride, it seems inevitable that the effects of this crisis will ultimately have a ripple effect on the housing market — adding even more weight to already heavy decisions. Ultimately, the choice to sell or hold during such a precarious window of time is an individual one. It’s best to consult with a trusted real estate agent for guidance on the best move for your situation.

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