The last few years have seen some wild fluctuations in the economy as well as in the real estate market. From soaring values and vanishing inventory to the current rebalancing act, it can be difficult to keep up with current developments, as things seem to be constantly changing. To complicate matters even further, these days it seems we can’t browse social media or our favorite news sites without encountering the dreaded word: recession.
In the face of rising prices and worsening economic pressure, it’s only natural to be concerned. However, if a recession is in the cards for the U.S. economy, there are some steps you can take today to help offset its impact.
1. Evaluate Your Financial Situation Carefully
The first step in preparing for a recession is to analyze your current financial life carefully. If you’ve experienced the stress of rising prices in monthly expenses such as food, gas, or utilities, you may need to find other places where you can trim your expenditures. Reducing costs by eliminating or cutting back on splurges and treats, such as food deliveries or eating out, can often help ease the financial crunch caused by a recession. That’s especially true when food prices are rising.
It’s also worth considering ways you can create new sources of income. Many people pick up a second job or begin freelancing in addition to regular employment, while others find creative ways to set up passive income streams. Perhaps you can earn additional money by listing a room or accessory dwelling unit on short-term rental sites such as Airbnb or VRBO. A combination of cutting costs and increasing income might be more than enough to get you through a recession without having to tinker with your property holdings.
2. Decide Whether You Want to Sell or Stay Put
With real estate markets still fairly strong across the country, but the situation becoming ever more fluid, many sellers are wondering whether they should try to sell their homes and downsize or whether staying put is a smarter financial move. There is no one-size-fits-all formula for making the best decision here, unfortunately.
Rather, it’s best to evaluate your personal situation both in light of a potential recession and separate from that possibility. Do you want to relocate or downsize? Is it financially imperative that you lower your mortgage payment and other living expenses, given the current rate of inflation? Are there any other possible solutions that you can explore to take some of the pressure off, such as taking in a roommate or refinancing?
3. If You Sell, Price Your Home Strategically
It’s tempting to look at recent home values in a seller’s market and want to reap the rewards for yourself. However, it’s important to price your home appropriately from the start. Otherwise, you can find yourself in the position of having to make repeated cuts to your asking price, which can make potential purchasers wary.
Consider talking with an experienced real estate agent in your area. Realtors who know your market conditions are best positioned to help you evaluate your options and make the best pricing choice for your home.
4. Take a Close Look at Your Investment Properties
Do you have one or more properties you rent out to tenants as an income source? Take a close look at your financial position in each property. If you have little or no equity in a particular rental or investment property, this situation could put you at risk. In a recession, renters often feel the economic squeeze first. What’s more, current tenants are already financially stressed, as rents have been skyrocketing nationwide. At some point, renters will need to explore ways to reduce their recurring monthly expenses, including rent.
Even if they don’t want to move, your tenants may well fall behind on rent and be unable to catch up. If that happens, you’ll need to either work with them or go to the expense and effort of filing an eviction case. If the market is strong for sellers in your area, consider selling one or more of your low-equity properties.
A recession is not a foregone conclusion, but if it does happen, a little forethought and some carefully made changes can get you and your family through it without affecting your investment in your home or other pieces of property. Don’t hesitate to contact the professionals—i.e., financial and real estate advisers—to make sure you’re well positioned to withstand any further economic stress.