Is the USA headed for a recession? In some cases, no one wants to breathe the word out loud in case it triggers a wave of fear that brings consumer spending to a halt. However, the refusal to talk about it doesn’t mean it won’t happen, and there is no doubt that some turmoil lies ahead. But there is also good news! The US job market remains strong, with low unemployment rates. In fact, the USA economy has steadily produced at least 400,000 jobs each month for the last 12 months.
On the flip side, the nation is plagued with political unrest and soaring inflation, despite a slightly lower inflation rate in July. Like Canada, the US Feds have raised their interest rates in an attempt to slow consumer spending and moderate the prices of goods and services.
Why does any of this matter if you live in Canada? It matters because as America’s closes neighbour, what happens there always affects us. In other words, if they go into recession, we are not far behind.
How Will A Recession Affect The Housing Market?
We’re finally coming out of one of the tightest real estate markets we have seen in recent history. High demand coupled with critically low supply caused housing prices to spike all over. A recession could change that situation very quickly.
We have already noticed the effects of interest rate increases that took place at several points earlier in the year. Housing prices have dropped month-over-month but remain higher than last year. However, that gap is closing, and fears of a recession can slow the market even more.
As frightening as the news may sound, many people have reasons to feel optimistic. The Canadian economy remains strong, and our job market is also thriving. That said, the housing market could continue to slow down as banks become more cautious about lending money.
The news isn’t all bad! This changing market means plenty of opportunity for buyers and sellers:
- The Benefits Of This Changing Market For Upsizers
- How Downsizers In Guelph Can Capitalize On The Changing Market
- Will A Shifting Market Help Millenial Buyers?
Can You Successfully Sell A House In A Recession?
Yes, you can – if you create a workable plan and stick to it. The first step is to realign your expectations with the rapidly changing market conditions. You simply can’t compare the selling process from six months ago to the current situation, nor can you expect to be able to time the market perfectly.
However, understanding the ebb and flow of real estate will help you come out ahead even if housing values fall. The first critical principle to understand is that in a recession, there are fewer people looking to buy real estate. This means you must pull out all the stops to make your home appeal to those who are in the market.
Setting the right price is critical to your success
Overpricing is a mistake in any market, especially in a recession. Buyers will lose interest and simply move on to the next listing – and they now have more options than they have in a long time. Of course, you don’t want to underprice your home either. What you need is a fact-based price that is supported by the current market. Your real estate agent will do a Comparable Market Analysis to help set the price just right.
Be conservative with your renovations
Before listing your house for sale, it makes sense to make repairs and updates so that it stands out on the MLS® and during showings. However, every penny counts during a recession. You don’t want to waste any time or money on any renovations unless you are sure they will pay off.
Market aggressively, using as many tools as possible
Even in the worst economic conditions, the buyers are still out there. It’s just a matter of reaching them. There are many free tools you can use to get exposure for your listing, but you may still want to consider using print postcards and feature sheets. The more exposure you can get in a slow market, the more successful your sale can be. You want your marketing to target people that aren’t currently looking to move as well as people actively looking.
Enlist the help of a real estate agent with experience in a recession
As scary as the thought sounds, we’ve been through recessions before and have come out on the other side stronger than ever. The trick is to work with an agent who has been through all conditions, not just the strong seller’s market we have just come out of.
It pays to do your homework before putting your home up for sale. These other posts will help you be a more informed seller:
- Types Of Offers And What They Mean
- Trends That Will Help You Sell Your House & Which To Avoid
- Are Solar Contracts Worth It?
The Hidden Opportunities In A Recession
One of the best opportunities during a downturn is that you can sell your house and wait until you have a firm offer before buying your new home. When the housing market is tight, you often have to buy first. Otherwise, you might get priced out or forced to live with relatives until you can find a place.
Selling first has two distinct advantages:
- It’s safer. You don’t have to worry about committing to a new home only to find out your house takes longer to sell than you anticipated.
- You stand to gain. If you sell your house, and then prices fall again, you could end up with more money in the bank once your new home closes. Or you may find a newer, more luxurious home for around the same price as your current property.
What A Recession Might Mean For Investors
Investors who have substantial equity in their current property have plenty of opportunities even when the market slows down. Housing prices usually drop in a recession but are all but guaranteed to go back up again, which means your equity will grow in time. And even if the Bank of Canada hikes the interest rate again, secured mortgages against your home equity are typically offered at lower rates.
In addition, more people rent rather than purchase, so you’ll have a vast pool of tenants for your income property, especially in a university town. Currently, there’s an unusual inversion between housing and rental prices. Housing values are going down, but rents are increasing. These conditions make it easier than ever to create a positive cash flow from an investment property.
A recession can be an excellent time for many people to break into the market as an investor. You’ll have options for the future you wouldn’t otherwise have. You can keep the property in your family and use it to create generational wealth. Or you can sell it later, cashing out to fund your dream retirement lifestyle.
Does the news of a potential recession have you feeling worried and you need a listening ear? We’ve worked with buyers, sellers and investors through every market condition and are happy to help. You can reach out to us right here.
