Are we in a recession?
The dreaded “R” word, recession. You can’t turn on the news without hearing it. It can feel like a self-fulfilling prophecy as a wave of layoffs and hiring freezes span multiple industries, causing businesses to tighten budgets to get ahead of economic uncertainty by…performing layoffs and hiring freezes.
The signs are present that we are already in a recession but some analysts argue that economic markers like GDP, consumer spending, and a favorable job market prove otherwise. However, whether or not we can say for sure “we’re in a recession” the current economic climate has an impact on real estate.
So what does all this back and forth over semantics mean for the housing market and prospective sellers?
What does a recession mean for the housing market?
Historically, an economic recession means a slowdown in the housing market. The worst housing crash in decades precipitated the 2008 recession. (Subprime mortgages are so early 2000s)
Though we wish we could, it’s impossible to predict the future, especially when it comes to the housing market. There are many factors that have influenced the current state of the housing market: Covid-19 had a major impact on interest rates in 2020, leading to a supply and demand mismatch that greatly benefitted sellers.
According to Zillow, U.S.home prices have risen 30% since 2020, placing the new national average at $350,000. While it has remained a favorable market for sellers to make a substantial profit from selling, in an effort to combat inflation, the Federal Reserve has been steadily increasing mortgage interest rates. Record-high rates, rising inflation, and the threat of layoffs do not make for a good buying landscape, causing sellers to make desperate price reductions. It doesn’t look like a pretty sight.
However, life goes on. People still need to buy and sell houses even in the midst of less-than-ideal financial times.
Four reasons why someone moves during a recession
Making the decision to sell and move during a recession is not an easy or light decision and is often not the first choice of a seller. It is ill-advised to sell when the market is unstable and unpredictable. But, there are many factors out of a homeowner’s control that contributes to having to sell during a recession.
- Life… happens. There are so many unforeseeable circumstances life throws at you, usually at the most inconvenient time. For many, moving isn’t a choice they want to make but one they have to make to improve their situation or move closer to their support group. Whatever the reason, it’s important to be empathetic and professional to help them through what could be a difficult transition. Read our tips here about how to help sellers in crisis.
- Change in family dynamic. Whether a family is growing in size or going through a divorce and separating the household, a change in family dynamic or a change in lifestyle may necessitate a move during a less-than-perfect time.
- Change of job or change in financial status. Sometimes a promotion, change in position or a change in company requires a move to a new city. They may be required to live closer to their work or a change in finances necessitates relocation. This can be driven by moving somewhere with a lower cost of living or upgrading to the home of their dreams.
- Remote work allows people to live where they want rather than where they have to. Since Covid, many industries have provided the opportunity for remote workers, often entire teams, allowing people to relocate to a more desirable area to be closer to family or somewhere not dependent on their job.
How to help sellers who can’t wait it out
No matter the reason for selling, not all sellers have the option to wait, though experts advise waiting is the best course of action during an economic recession. For sellers who have no choice but to navigate a new selling landscape, having a plan and being flexible can help get them through what could be a longer-than-anticipated seller’s journey.
Setting expectations early in the process can help mitigate bumps down the road. With homes sitting on the market roughly 20 days longer than just earlier this year, sellers may feel pressured to reduce price too soon. Pricing wisely can help sellers avoid having to make price cuts.
Starting with a pre-listing inspection can help ensure sellers are listing at the right price to start with and avoid overpricing or underpricing and leaving money on the table. A pre-inspection can determine any structural or quality-of-life issues with the home that could lead to price negotiations after an offer is made and accepted. Buyers are facing the highest interest rates seen since the 2008 housing bubble burst and want to avoid any costly repairs that could take more money out of their pockets.
If sellers have to sell now, It’s best not to wait for things to “get better” because it may not get better for a while. The market doesn’t show any signs of improvement over the next year, and home prices could suddenly drop as the economy pulls back further.
Sellers shouldn’t expect to make the kind of profit off of the sale of their house as the past 2 years but it’s not all bad news. If priced right, flexible with their timing, and realistic with their expectations, they are still poised to make a profit.
With fewer people selling, prospecting is more important than ever. The agents that reach out, stand out.
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