Is a Recession a Good Time to Buy or Sell a House?
For the first time in the 11 years, the UK economy witnessed its biggest slump on record as the measures put into place by the government to control the virus pushed the country officially into a recession. A surprise, as the UK economy did witness a relatively strong period of recovery throughout the summer months, as the hospitality, retail, and property market kicked back into action. There is no doubt this is sobering news for UK businesses and households.
In comparison to the financial crisis of 2008, the recession we are currently witnessing is inherently different. Though the UK economy has, over the past few months, experienced its largest slump on record. The recession experienced currently is as a result of deliberate measures that were put in place to curb the spread of the virus. In contrast, the 2008 economic crash was the result of financial mismanagement.
The one element that both recessions have in common is the importance the property market played in our economic recovery. While the economic recovery may be a while away, the current economic climate is having a direct impact on the property market with homeowners and buyers trying to navigate its testing waters.
So, what does this mean for the property market?
The impact on the property market
With any recession, one of the most scrutinised factors is the housing market. As for the majority of the population, the transaction around a property is the biggest they will make; there is no surprise people want to talk about it.
Trying to answer what the impact of the recession is on the property market is not as simple as people would imagine. The property market has witnessed one of its most unpredictable years in living history. There is no denying that the UK housing market was looking in dire straits during the peak of the lockdown and the subsequent freezing of the market. However, since its re-opening in May, the health of the property market has been something to cheer about.
In the short-term, the impact on the property market hasn’t made a considerable impact. The pent-up demand for property that built up during lockdown fuelled the market during the summer months and continues to do, as a flood of buyers and sellers have entered the market, eager to take advantage of favourable property prices, the Stamp Duty or the chance to sell their house fast.
Is a recession the right to time buy?
Although the pausing of the market most certainly caused a level of uncertainty, this did, however, create a market environment that benefits those looking to buy a property.
Due to the re-starting of the property market from cold, buyers looking to purchase a property in the second half of 2020 and early part of 2021 can take advantage of the Stamp Duty holiday the government put in place on properties under £500,000 in July (running to March 2021). Although the announcement of such measures is not a necessity of the current market environment, the decision to reduce the amount of tax paid on the sale of a property has softened the market, making it a more favourable place for buyers to return.
While the current recession did not have an immediate impact on property prices overnight, when the property market re-opened at the end of May, buyers throughout the UK were welcomed with a fall in the average house price. Although reports published by two of the UK’s largest building societies in the UK, Nationwide and Halifax, recorded the first drop in the average property price in close to 10 years. Property prices did see their most significant annual rise since 2016 in September; values rose by 5% this September compared to the same time last year. Also, they have increased on average, 0.9% every month. But what does this mean for buyers?
Traditionally a recession will see property prices naturally deflate as the economy shrinks, creating a market favourable towards buyers. While there is some truth to this, the rebounding of property prices throughout the summer has, to some extent, levelled the playing field between buyers and sellers.
Is it the right time to sell?
Selling your homes is one of the most significant financial commitments a homeowner can make. There is no question 2020 has been a testing year for homeowners across the UK. However, this is not to say this is the wrong time to sell. Although, the average property price did slip when the property market re-opened. The pent-up demand that materialised during lockdown allowed property prices to rebound so quickly during the summer months as buyers competed for a limited supply of properties listed on the market. Furthermore, the application of Stamp Duty holiday on properties under £500,000 created a market where homeowners could benefit from increased competition and the likelihood of sale on their property.
While the current recession we are witnessing may be worrying times for businesses and homeowners, the current market environment does, however, provide advantages to both selling and buying a house. The real question on whether it is the right time to buy or sell a home should be answered once the Stamp Duty holiday comes to a close in March 2021.
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