A recession is a significant downward economic trend typically lasting between 6 and 18 months. A recession is often accompanied by inflation – or a rise in prices – which translates to the dollar being unable to go as far as it used to.
American families are now paying $445 more for necessities than a year ago. In September this year, inflation caused a 13% increase in the price of groceries. In a healthy economy, some inflation is expected. When inflation makes a steep jump, families reconsider what they spend their money on, which can eventually lead to a recession as the economy slows. Today, 66% of Americans fear a major recession, with 82% worrying that their purchasing power will continue to go down as the price of things goes up.
Table of Contents
- Home maintenance
- Housing market: Is it convenient to sell your house during a recession?
- Housing market: Should you buy a house during a recession?
- How to find a good deal
- How to get your offer approved when there’s more competition
Considerations for homeowners
Recessions affect everybody, regardless of income, and homeowners are no different. The effects of a recession can reach every aspect of our lives. They’re most noted for causing layoffs, as companies cut back on their spending to stay afloat. Credit card interest falls, and the stock market takes a nosedive as the economy destabilizes. While recessions are notoriously challenging, they can be useful in some ways.
In the case of renovations, an economic downturn can work to a homeowner’s benefit. A recession can be good, depending on your perspective. As a homeowner considering whether to renovate, a recession may prove useful.
Competitive pricing during a recession
The price of goods and services falls during a recession, causing competition between companies or service providers as they vie for business. For homeowners, these lower prices can put those renovations within their grasp, making recessions the ideal basis for remodeling projects.
Home renovation trends during recessions
A major kitchen overhaul may boost the value of your home at some point, but major renovations are financially risky during a recession. Most people who renovate during a recession lean toward smaller projects, such as painting. This way, they give their home a facelift without taking on too much financial risk.
Best renovations to do during the recession
Many home renovation projects fit into the “smaller” category, and some are more popular than others. Some renovation projects offer a greater value-to-cost ratio. Here are some of the more popular renovations to take on during a recession:
- Painting – Even if it’s just one room, painting is a cost-effective way to refresh the look of your home.
- Finishing spaces – Completing an unfinished room gives your home additional usable space without costing a fortune. As a bonus, finishing a room is often easy enough to be a DIY project.
- Updating your kitchen – Doing some simple updates, like replacing the cupboards, gives your kitchen a whole new feel.
- Siding replacement – Replacing the siding helps weatherproof your home and give it a facelift.
Keeping your home in good order is important. After all, the need for home maintenance doesn’t stop when the economy hits a recession. The lower prices brought on by a recession can help you make repairs, which may lower the cost of your utility bills.
Housing market: Is it convenient to sell your house during a recession?
A recession is not a seller’s market, but you can still sell your home with patience. Here are a few things to consider when trying to sell your home during a recession:
- Don’t overprice – When you set a price too high, potential buyers lose interest. If you set it too low, you’ll get unsatisfactory offers.
- Make smart home updates – Home updates that don’t cost a bundle can attract potential buyers without financial risk.
- Consider renting your home – A recession isn’t the ideal time to sell your home, but you can draw an income by renting it out.
Consideration for homebuyers
A recession can be a gift for homebuyers because housing prices fall when the economy slips.
Housing market: Should you buy a house during a recession?
A recession is a buyer’s market, with lower prices making buying a home more affordable than selling one. While some “cons” are involved in buying a home during a recession, there are also a few good “pros.”
- Sellers may be flexible – With the recession impacting the cost of buying a home, prices may be flexible.
- Interest and mortgage rates will go down – The Federal Reserve stimulates the economy by reducing the federal funds rate, which reduces interest on credit cards, mortgages, and so on.
- More choices – Less competition for the available homes means more choices for you.
- Seller concessions – Sellers may make concessions if their house has been on the market for a while. You could ask them to cover the closing costs, for example.
- Job uncertainty – Unemployment rates could cause financial instability in your household.
- Banks may not finance you – Bankers are less likely to approve mortgages during a recession.
- Title issues – If the homeowners you want to buy from are deep in debt, there may be claims against their title.
- Difficulty selling your existing home – A recession can make it difficult to sell a home.
How to find a good deal
If the economy is in the middle of a recession, there are many ways you can get the best deal when buying a new home:
- Watch for listings with price reductions – The longer a listing has been active, the greater the chance of a price reduction.
- “As is” labels – Look for homes with an “as is” label. They may require some work, but if you’re handy, you can get a good deal this way.
- Look through foreclosure listings – Foreclosures often sell at 20% lower than market value.
- Buy at the end of the year – The year’s end is the real estate off-season when housing prices tend to be lower.
How to get your offer approved when there’s more competition
One of the downsides of a buyer’s market is greater competition. As a potential buyer, you must make your offer stand out so it’ll be accepted even when competition is tight.
You can do a few things to stand apart from the rest:
- Give proof of pre-approval – Being pre-approved for a mortgage makes you look a lot more like a sure thing to a home seller.
- Put down a deposit – A deposit makes you seem more earnest, assuring the home seller of your intention to buy.
- Write a sincere letter – This may seem a bit corny, but a sincere letter of your intentions might sway things in your favor because most people form an emotional attachment to their home.
The effects of a recession on mortgage rates
Mortgages don’t escape the effects of a recession. They can be challenging to navigate in economically troubled times, but mortgages also have some inherent benefits. Let’s see how mortgage rates are being impacted.
- Lower interest rates – Interest rates go down during a recession, including for mortgages.
- Lenders may consider your assets – Lenders may consider the value of other assets you possess, such as vehicles.
- Getting a fixed-rate mortgage locks in lower interest rates – A fixed-rate mortgage will still have its low-interest rate after the recession.
- Interest rates may change dramatically without notice – Interest rates for standard mortgages may fluctuate dramatically.
- Lending standards are stricter – Banks are less likely to approve mortgages during recessions.
- Conventional mortgage rates may rise after the recession – When interest rates aren’t locked in by fixed-rate mortgages, they can rise after the recession.
Many things change when a recession hits due to the economy’s downturn. The cost of goods and services goes down, the housing market starts to turn in favor of buyers, and people start to cut back on their consumer spending.
Staying afloat during a recession sometimes means you have to make some difficult choices about your spending. You should always set aside money for savings, but that may not be possible in a recession. Still, there are ways you can reduce spending to make ends meet. Here are a few ways to save a few dollars daily:
- Bring lunch to work – Instead of buying food while at work, bring a packed lunch from home.
- Use coupons and sales to shop – Looking for deals is a smart way to get the things you need.
- Lower your thermostat – You can save on your utility bills by lowering your thermostat even a little bit.
- Make household repairs yourself – If you’re handy, save money by making small repairs independently.
Job market during a recession
During a recession, the job market gets smaller as companies may cut expenses by laying off employees or placing a freeze on their hiring process until the economy shows signs of improvement. Each option tends to lead to a higher unemployment rate, making a troubling time even harder.
On the other side of the coin, the recession becomes a catalyst for personal and professional growth, providing a chance for new opportunities and inspiring resilience among job seekers. While the economic downturn may initially seem daunting, it ignites a spirit of innovation, adaptability, and resourcefulness in individuals. Eventually, the job market diversifies and evolves, creating space for emerging industries and fresh skill sets to flourish.
Stay out of debt and protect your credit score
It’s tempting to think of your credit cards as a means of income. The problem is once you develop credit debt, it can be hard to get out of it. A recession may also lead to hard choices, like buying groceries instead of paying your bills. This, in turn, can destroy your credit score.
It’s important to protect your credit score before and during a recession. Here’s what you can do to safeguard those numbers:
- Create an emergency fund – An emergency fund gives you something to draw from during a recession.
- Pay off debts – Paying off your debt improves your score and reduces the amount you must pay each month.
- Live within your means – A credit card is not disposable income and shouldn’t be treated as such. Establish what your real income is and budget to live within it.
- Make payments on time – Your credit score increases when you make a payment on time.
A recession can pose many challenges, especially for families and those looking to buy or sell in the housing market. On one hand, a recession can have potentially devastating effects like job loss and a poor housing market for sellers. On the other hand, it comes with a unique set of advantages for homeowners and homebuyers.