There have been increasing fears that the United States is entering a recession, as we've heard on the news recently. It doesn't hurt to be prepared, even if it isn't confirmed as of today (June 10th).
But first, what is a recession?
According to the National Bureau of Economic Research, a recession is defined as a significant decline in economic activity spread across the economy lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. (Source: Will Cook)
Our economy is very interesting as of late. There’s a great number of people resigning from their jobs, but the unemployment rate has been at an all-time low. Income is strong, but so is inflation. The Fed is trying to tamp down inflation by raising interest rates, which means borrowing money will become more expensive.
In fact, mortgage rates rose rapidly in a short time and have now leveled out at 5.5%. While it is a jump from the 30-year FRM of 3.6% to 3.8% rate of December 2021, it is still pretty low, historically speaking.
This is the first thing homeowners need to know about a recession: A recession doesn’t equate to a housing crisis. Over the last four decades, the US has gone through six recessions. According to Keeping Current Matters’ data from CoreLogic and The Balance, only two of those recessions did real estate experience a dip in home prices: The Gulf War recession in 1991 (-1.9%) and the Great Recession of 2007 and 2008 (a whopping -19.7% that caused the historic 2008 housing crash).
Despite what you hear from YouTubers and media outlets, the current housing market isn’t going to crash. At least that’s what the data has shown.
But if a recession does come, history has proven that it doesn’t automatically mean your home will lose value. It does pay to avoid financial risks though, such as cosigning a loan, getting an ARM (Adjustable-Rate Mortgage), taking on a new credit line, quitting your job (without a new job waiting for you), and making risky investments, according to Investopedia.
The second thing you should know is that owning a home can protect you during a recession. Properties are sitting on record-high values of equity, which you can tap as a source of income during an economic downturn. This is an especially good option if the stock market is in bad shape.
A recession is a concerning thing, and preparedness is key, but if you are a homeowner, you don’t have to panic. Real estate has been relatively stable, historically, in the face of an economic slowdown.
And if you are planning to buy, my tip is to be honest about your finances before entering the market. It is still a competitive market, and if you are not in a good financial position to make a big purchase, a recession might not be the best time to do it.
I hope that helped. Have an awesome day!