Selling your home in a recession can be challenging; but it doesn’t have to be. Many American homeowners are beginning to recognize the telltale signs of a recession, and what it means for them. However there is an entire generation of new homeowners who have never faced a recession that has deeply affected their home values. Consequently, they are among the first who get caught in a series of avoidable disasters. In today’s post, I would like to share with you what I consider to be the “Three Sides” of selling your home in a recession.
The First Side… The Money Side.
When trying to sell your home, inevitably the discussion turns to price. After all, why would you consider selling unless you can get a reasonable price for your home? The challenge when selling your home in a recession is that your sale is affected by several monetary factors.
For example; as inflation increases, it becomes harder for a typical homeowner to purchase your home. The reasoning is straightforward. If people are spending more money on gas, food, housing, and other items, it will leave less money for other items. It becomes harder to purchase your home because the typical buyer is now dipping into their savings. Savings that they could have used on a down payment or closing costs.
As inflation rises, jobs become less and less secure. Layoffs become common, and hourly wages are eaten by inflation. Homebuyers become less certain. Job insecurity becomes prevalent; and an insecure buyer seldom buys a home.
To combat inflation, rising interest rates are used. This causes a slowdown in purchasing of items as it now becomes more expensive to do so.
As interest rates rise, a simple 1% interest rate rise can potentially cost the buyer hundreds a month in payments, and tens of thousands in the life of the loan.
The Second Side… The Properties Side.
Fear Of Missing Out (FOMO), is a real thing. It particularly appears in stocks and other forms of investment. Typically, its used in the sense that one might be missing out on making a lot of money on an underpriced investment. In this case, Fear Of Missing Out would apply to Sellers who want 2020 prices.. in a 2022 Market.
You see… when a Seller realizes that the market is beginning to wane, or those who have secondary homes (think rentals, and Air BNB) begin to lose money or interest in being a landlord, those homes are the first to come on the market for sale.
Add those vacant former rentals to an ever growing list of active homes for sale and voila! Instant market saturation.
What’s worse when selling a home in a recession is forced sales. Marital infidelity, spousal abuse, and financial problems all top the list of stated reasons for a divorce.
If you have lived any amount of time, you know personally the pain and difficulty of divorce. Either from yourself, or others. I’m here to tell you that when times get tough, divorces and subsequent home sales increase. While you may not personally be getting divorced, a couple down the street who is and sells their home just to “get rid of it” will affect you.
This increase in properties for sale and the subsequent rise in days on market are already visible to anyone with eyes to see. When selling your home in a recession; you won’t be alone. There are lots of other sellers who are be afraid of “missing out” on all the “equity they made” over the past two years.
Contrary to what most think, the problem isn’t a supply problem. It is a demand problem. You can’t buy what you can’t afford. Which leads us to the third side…
The Third Side… The Buyer Side
Avoid a “Race to the Bottom” situation. As the real estate market begins to cool and return to more realistic levels, it inevitably will lead to a “race to the bottom” for some homeowners. To avoid this fatal and costly trap, be sure to price your property as aggressively as possible. There are a multitude of reasons for this including attracting the highest paying buyer first, keeping the buyer throughout the transaction, and successfully encouraging them to close property and on time.
When selling your home in a recession, home buyers will wait. Not only do the rising mortgage rates make it more difficult to buy; it causes homeowners to do price reductions.
Home Buyers see these price reductions increasing across United States and particularly in the local real estate market. It only stands to reason that those who can afford to wait; will.
Another consideration is the fact that home buyers are seeing more properties coming on the market. They see the signs stay in front of house, and homes staying on the market for extended periods of time. As a result, more home buyers are cancelling their home purchases or making lower offers when they do make offers.
Action Steps For Selling Your Home In A Recession
In subsequent blog posts, I will share with you even more specific information regarding selling your home in a recession. For today however, let us focus on three things that will help you overcome buyer reluctance, and ensure a smoother sale.
Step 1
First, you must decide to sell. In a normalizing market, only the best homes in the best condition sell.
Long gone are the days of putting your home on the market in just any condition and having a bidding war in 20 minutes. Now, you must mentally prepare for a prolonged period of market time. It doesn’t necessarily mean there is something wrong with your house… although it could. More about that in a further post.
Step 2
Second, price your home 5%-10% lower than the comparable homes in the area.
While it may seem drastic at first, you are pricing your home for what the market is now. Not 2021. Remember.. in a downward trending, or static market; you cannot price your home off the sales prices of homes that were in a different (and lower interest rate) market.
Step 3
Finally, remember this key piece of information. Usually, the first offer you get is the best.
Home Buyers have more choices coming on the market every day, and even as you think about accepting or countering their offer, a neighbor of yours could be planning on putting their home on the market that week. You never know what the market conditions may bring and as such, it is wise to accept offers for what they are, not what you wish them to be.
In future posts, I will share more. But for now, if you have any questions or have a problem property, reach out to me below and I will be happy to help!