{"id":32664,"date":"2022-08-16T16:05:56","date_gmt":"2022-08-16T23:05:56","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=32664"},"modified":"2022-09-16T10:04:52","modified_gmt":"2022-09-16T17:04:52","slug":"how-to-prepare-for-recession","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/how-to-prepare-for-recession\/","title":{"rendered":"9 Ways to Prepare for a Possible Recession"},"content":{"rendered":"

The U.S. housing market is undergoing a rebalancing. Visit\u00a0HomeLight’s 2022 Housing Trends Hub<\/a>\u00a0for information on how to navigate a shifting market \u2014 whether you’re a seller, buyer, or homeowner.<\/em><\/p>\n

The past couple of years have been, well, dizzying, and now with inflation raging<\/a> and interest hikes abounding<\/a>, everyone wants to know: Are we headed into a recession?<\/p>\n

The answer is, unfortunately, maybe. That\u2019s enough to make us all a bit queasy, and homeowners are feeling especially nervous. Will your equity plummet? Should sellers hurry up and sell now? Should buyers jump in ASAP, or cool it until things look more stable?<\/p>\n

To get the answers, we spoke with Andretta Robinson<\/a>, a top real estate agent with over 16 years of experience and 15 awards in bringing stellar property transactions to fruition. Robinson gets into the nitty gritty below.<\/p>\n

And to get the full story on how you can recession-proof your finances, we interviewed Joseph Sroka<\/a>, chief investment officer and co-founder of Atlanta-based investment firm NovaPoint Capital<\/a>. Sroka brings over 20 years of experience in financial advising to the table.<\/p>\n

Read on for an expert-backed guide to how to prepare for a recession \u2014 before one comes.<\/p>\n

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How Much Is Your Home Worth Now?<\/h3>\n

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What is considered a recession?<\/h2>\n

So, what exactly is a recession? It depends on who you ask. The most popular definition of recession is a bit technical:<\/p>\n\n\n\n\n
Popular Definition of Recession\u00a0<\/b><\/td>\n<\/tr>\n
Recession: At least two consecutive quarters of negative growth in gross domestic product (GDP).<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

If it\u2019s been a while since economics class, fret not. GDP is the net cash value of everything that comes out of an economy. It\u2019s typically measured in quarters, which are periods of three months each. In other words, the technical definition of a recession is an economic downturn that lasts at least six months.<\/p>\n

The National Bureau of Economic Research (NBER) is responsible for deciding on what officially counts as a recession and recording the start and end dates. Here\u2019s their definition:<\/p>\n\n\n\n\n
NBER Definition of Recession\u00a0<\/b><\/td>\n<\/tr>\n
Recession: A significant decline in economic activity that is spread across the economy and that lasts more than a few months.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
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Are we going into a recession?<\/h2>\n

Things are looking a bit iffy. GDP has been negative for two consecutive quarters<\/a> as of July 2022, and the current state of inflation paired with Fed<\/a> interest hikes could signal pain to come.<\/p>\n

But as it stands now, unemployment is still low, which is a key metric for determining how healthy the economy is. If we are entering a recession, this could be a sign that it won\u2019t be widespread and deep<\/a>.<\/p>\n

\u201cI don\u2019t see this being catastrophic, as long as the job market remains healthy and consumers remain able to meet their needs, even if they\u2019re tightening their belts,\u201d Sroka says.<\/p>\n

Robinson tells her clients something similar: This isn\u2019t a 2008 situation.<\/p>\n

\u201cIn the 2008 recession, there was very little equity in homes,\u201d Robinson explains, referencing the previous housing recession<\/a> \u2014 a market crash brought on by risky lending and mass foreclosure.<\/p>\n

The difference now? Everything. \u201cMost sellers have tons of equity in their property, which is wonderful for homeowners,\u201d Robinson explains. \u201cThey\u2019re able to sell their property and make a profit, as opposed to having their property go into foreclosure.\u201d<\/p>\n

All that is to say that future market conditions<\/a> aren\u2019t set in stone, but there\u2019s no need to panic. Instead, take a look at your financial situation and prioritize building stability.<\/p>\n

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9 ways to prepare for a recession<\/h2>\n

Building up financial stability and developing a long-term plan is key to surviving volatile market conditions<\/a>. \u201cThese things aren\u2019t really any different than the things you should be doing every day,\u201d Sroka says, \u201cWhether this recession comes or not.\u201d<\/p>\n

Here are nine key ways to prepare your finances for a recession:<\/p>\n

1. Assess your financial health<\/h3>\n

Recessions can be damaging to people who are financially overextended or who have their money tied up in risky assets. In the words of Warren Buffet, \u201cOnly when the tide goes out do you discover who\u2019s been swimming naked.\u201d<\/p>\n

\u201cOf course, you\u2019re not worried about financial damage from being overextended during a positive economy, because borrowing is benefiting you,\u201d Sroka explains. But flying too close to the sun is always risky.<\/p>\n

In particular, Sroka mentions holding too many properties<\/a> with low equity as a risk. \u201cAny recession can be catastrophic for someone who, for example, owns five rentals<\/a> that are all 90% mortgaged.\u201d<\/p>\n

2. Update your financial plan<\/h3>\n

Always tailor your investment strategy to when you\u2019ll need the investment money. If you\u2019re nearing retirement, take special care to revisit your investments and ensure you\u2019re not exposing yourself to too much risk, and instead are preserving wealth.<\/p>\n

\u201cWhen you\u2019re very young, you can be aggressive in your investing,\u201d Sroka says. \u201cAs you age, you should gradually get more conservative, going from high-growth assets<\/a> to income-providing assets.\u201d<\/p>\n

That may mean trading a portfolio composed mostly of stocks for one composed of bonds, for instance. \u201cIf you\u2019ve been doing that all along, then keep on that path,\u201d Sroka says. \u201cBecause that course is mapped to take into account the occasional recession.\u201d<\/p>\n

3. Review your budget<\/h3>\n

First thing\u2019s first: Ensure you\u2019re living within your budget. Even if recession isn\u2019t approaching, it\u2019s indispensable advice.<\/p>\n

\u201cMake sure that you revisit your household budget to make sure your needs are being accounted for,\u201d Sroka says. He mentions housing, food, and fuel: things you can\u2019t live without. \u201cIf necessary, eliminate some discretionary wants in your life.\u201d<\/p>\n

4. Cut back further<\/h3>\n

Revisit your budget to see how much of your income goes toward expenses, how much goes toward discretionary spending \u2014 that\u2019s shopping, dining, or any other spending you do that isn\u2019t necessary \u2014 and how much you\u2019re putting into savings each month.<\/p>\n

\u201cIf you want to sleep well at night and ensure you\u2019ll be able to keep a roof over your head and meet your needs, now\u2019s the time to start living within your means,\u201d Sroka says. Spending less than you earn and saving the difference is key to increasing financial resilience, recession or not.<\/p>\n

\u201cYour money is there to benefit your life,\u201d he says. \u201cAnd the way you can make sure your money will always be there to benefit your life later is by adjusting your lifestyle now.\u201d<\/p>\n

5. Pay off high-interest debt<\/h3>\n

If you\u2019re carrying high-interest debt, such as a credit card balance or a personal loan, prioritize aggressively paying it down (without overextending your budget overall).<\/p>\n

Given that recessions are often linked with increased federal interest rates, you should focus on erasing your highest-interest debts first. Those debts can become more expensive if they\u2019re variable rate, such as is the case with a credit card or a home equity line of credit<\/a> (HELOC).<\/p>\n

6. Increase your emergency \u2018rainy day\u2019 fund<\/h3>\n

Increased unemployment often accompanies economic recession. In case your income were to be cut off or reduced, start buffering your emergency savings now.<\/p>\n

\u201cAim for six months of living expenses saved up,\u201d Sroka says. He says that\u2019s enough for most people to sleep easier through volatile market conditions.<\/p>\n

Make sure the money isn\u2019t invested. That can be a big mistake in a recession, when selling stocks at a market low means taking a loss \u2014 at a time when you can\u2019t afford to be hurt. So keep your funds liquid in an interest-bearing savings account.<\/p>\n

7. Look for additional sources of income<\/h3>\n

Unemployment rates are still low, so consider making hay while the sun shines.<\/p>\n

This can mean asking for a raise or picking up extra shifts at work. For even greater resilience, aim for diverse streams of income. Can you pick up a side gig? Do some freelance work?<\/p>\n

In addition, consider updating your resume and building your professional network now. Unemployment rates are low. If we do enter a recession, however, jobs could become harder to come by. So position yourself as a competitive candidate to stay agile in case things get dicey down the line.<\/p>\n

8. Keep calm and carry on investing<\/h3>\n

For those who have quite a bit of time between them and retirement, economic recession may have some long-term financial benefits. \u201cIf that money\u2019s coming out of your paycheck and into a 401(k), then you should actually love a market downturn,\u201d Sroka says. \u201cBecause it means some of that 401(k) money you\u2019re investing is going into the market at lower prices.\u201d<\/p>\n

The last thing you want to do is jump ship in a state of anxiety. Instead, stick with the plan. Should it come, this recession, too, shall pass<\/a>. \u201cAs long as you can survive financially, you\u2019ll look back five or ten years from now and be happy with your investments.\u201d<\/p>\n

9. Consider getting professional guidance<\/h3>\n

Sroka explains that investment advisors are prepared to help their clients pick investments that are tailored to their risk tolerance.<\/p>\n

\u201cWhether you work with a professional or not, it\u2019s vital to have your investments aligned with the right level of risk for you,\u201d he urges. \u201cRemember, everyone’s risk-loving when the market’s going up; everyone’s risk-averse when the market\u2019s going down. Try to find a happy medium: a risk-tolerance that you can live with every day.\u201d<\/p>\n

\n The<\/span> beautiful thing about real estate is that real estate is <\/span>personal. <\/span><\/i>When a seller is ready to sell, it\u2019s often because their lifestyle has changed and they feel ready. So they\u2019re often <\/span>determined to sell regardless<\/span>.<\/span><\/b><\/q>\n
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