A looming recession and rising interest rates means that buyers and investors need to think more carefully about what type of property to buy. Here are some thoughts on exactly what types of houses make the best buys in a recession .... whether you’re buying for yourself or buying an investment property.
Firstly, is a recession a good time to buy a house?
The answer is, yes, a recession can be a very good time to buy a house. In a recession prices could fall so there could be bargains to be had. Sellers are more likely to consider low offers. There are likely to be fewer buyers around, so you can take your time and not be in competition with potentially a hundred other hungry buyers.
The catch, of course, is that you still need to be able to afford to buy and pay the mortgage. You also need to be in it for the long term, and be prepared to accept that the value of the property might fall in the short term.
So what types of houses tend to be the best buys in a recession?
Small houses. Small houses tend to be readily resellable – and hold their value well – in a recession simply because more people can afford to buy and run them. If you’re investing or buying to let they’re good for the same reason.
It’s probably a case of thinking small, but not too small. Small two or three bed family houses are a good choice.
Suburban houses. Suburban houses tend to be a good bet whether buying or letting because more people want to live in the suburbs. The suburbs have the best access to jobs, local amenities and schools.
City centre properties can be tricky in a recession, because no one knows what might happen to the city centre jobs market and the retail sector. Also, while there was a ‘dash for the country’ during Covid this doesn’t seem to be a long term trend.
Locations where the jobs market is more resilient. It’s important to remember that the type of house most people buy or rent is closely linked to the job they have, and their income. So it’s important to buy in areas where the jobs market is more resilient. Be wary of buying or investing in areas where there is only one or several large employers or only one main industry. If they go out of business or downsize it will directly impact the property market there. Favour areas with many different industries and many different employers to balance the risk to the market.
As well as that, areas with good transport links are best .... as ever. If local employment opportunities decline people will be able to travel out of the area for work more easily.
Period properties. Period houses always tend to be in strong demand and hold or gain their value best. In a recession, the buyers that are around will tend to favour a period house over a contemporary one if they have a choice. Period houses are always considered desirable and supply is limited .... they’re not building any more period houses!
Victorian and Edwardian houses tend to be the perfect types of period houses to go for. And the more original features they have the better.
Houses that need doing up. In the good times people may search out their dream house and prefer to buy in a ready-to-move-into condition. In a recession, however, buyers are likely to lower their expectations. They’re more likely to put up with dated décor and layouts on the basis that they can improve their house as funds allow.
Another good reason for buying a house that needs doing up during a recession is that it offers scope to add value (or even resell at a profit) by making improvements. In other words, buying this type of house offers something of a hedge against falling prices.
By contrast new builds need very careful consideration in a recession. They tend to be priced at a premium from new which increases the potential depreciation if prices fall.
Houses with scope to extend. In a recession, people tend to think smaller. But while smaller houses are good it’s even better if they have room to extend. Buyers are more likely to consider buying a house that is smaller than they need now if they can extend it in future as and when finances allow. It makes a lot more sense than buying that big house all in one go.
For this reason semi-detached and detached houses with gardens, that haven’t already been extended up to their limit, are a good bet.
At the end of the day, the same criteria that apply to buying a house in normal times also apply to buying a house in a recession. It should be affordable, be in the right location and be something that fits your needs. And if letting it needs to be something with good rental demand and which offers good yields. But in a recession applying some additional criteria will hopefully help you to make an even better buying or investing decision.