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Because many of you are probably wondering what a recession implies for the housing market and home prices such as Wealth management services Melbourne, we have outlined a few essentials from a property standpoint. But, before we get into it, let’s define what a recession is.
What Does The Term “Recession” Mean?
Entering a recession indicates that a country’s economy, or GDP (Gross Domestic Product), has contracted for two consecutive quarters, or six months in a succession.
What Effect Does The Onset Of A Recession Have On Housing Prices?
A recession isn’t necessarily awful for everyone, and not all recessions are created equal.
The last recession, known colloquially as the Great Recession of 2008-09, spanned five quarters and was the worst since World War II. Its origins were traced back to the US subprime mortgage crisis, which impacted the British banking industry, but many UK homeowners benefitted from lower mortgage payments, leaving them with more spare money than when the economy was thriving.
Obviously, things were not perfect for everyone, and every recession in history has had one thing in common: polarization. Recessions usually exacerbate financial disparity, with job losses, fewer promotions, and wage freezes wreaking havoc on the ordinary Joe and Joanne.
The 2020 recession will undoubtedly be nuanced, owing primarily to the unusual nature of its major culprit, coronavirus (COVID-19). However, the property market is still divided into four major categories: privately held residences, council-run rental housing, rentals owned by private landlords, and housing association units.
While the composition of these groups varies greatly, the reality that they are all dependent on the general economic health of the country persists. Conversely, the economy is influenced by the health of the UK housing market, which often reflects the country’s wealth and is a driver of associated sectors such as construction.
In response to the direct question, How does a recession affect property prices?, there is little doubt that a downturn in the economy may have a negative impact on value. However, because there are so many variables at play, it is not a blanket statement that applies everywhere.
Popular regions, such as our old haunts of Wanstead in East London, will continue to thrive, while less attractive areas will struggle. While even the most desirable areas can be affected by a long-term recession, the impact is likely to be less significant.
At the moment, the tremendous interest in relocating since the lockdown was released has resulted in a pleasantly balanced market with ample supply to meet demand. The crucial issue now is whether demand will continue following the formal admission that the UK has entered a recession, or whether people’s enthusiasm for property will begin to decrease in the coming months.
If the latter occurs, we may be witnessing the first true buyer’s market since the 1990s.
Should You Buy Real Estate During A Downturn?
This type of inquiry is frequently improved by reframing. Instead of wondering if you should purchase a home during a recession, consider whether you need to buy a home right now. Some will say unequivocally yes, some will say unequivocally no, and many will question why they asked in the first place!
Another key factor to consider is personal financial stability. Do you have the required savings? Is your work looking secure in the near future? While none of us have a crystal ball, neglecting these considerations entirely is, to say the least, reckless.
Banks will also take a closer look at your condition, and lending will surely tighten as the crisis deepens. A worsening recession may even compel the chancellor to declare an imposed cut in income multiples granted by banks to limit borrowing now in order to save people a lot of grief later on.
Should You Sell Your Home During A Downturn?
The property market will continue whether you enter it or not, therefore it’s far more essential to consider your own particular circumstances than attempting to predict what will happen next in terms of price variations.
In summary, if you are investing or looking for a financial advisor or investment advisor in Melbourne, a recession is less important than most people believe. However, things can be a little difficult for first-time buyers, and you may profit from holding put and watching how the market plays out over the following several months.