What a recession could mean for you

These questions loom for Americans after the Federal Reserve hiked rates again to fight high inflation and the latest Gross Domestic Product report showed the economy slowed for the second consecutive quarter. But at the same time, the job and real estate markets are still going strong, even if they have cooled slightly.

This has created many mixed signals. The White House and other government leaders say the economy remains healthy. But several economists say there is a good chance of a recession occurring in the future months – if one it hasn’t started yet.

In the event of a recession, here’s how it might affect your finances and what steps you can take to protect yourself.

Over the past two years, the pandemic-induced labor shortage, coupled with a structural shortage in which fewer younger workers are replacing retired workers, has given employees a lot of bargaining power.

As a result, unemployment and job cuts have been at or near historic lows.

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“We have been through a period of extremely low layoffs and labor shortages. Companies have been reluctant to let anyone go,” said Andrew Challenger, senior vice president of global relocation firm Challenger Gray & Christmas.

This is starting to change, Challenger said. Layoffs have increased in some sectors, such as mortgage credit, fintech, construction and automobiles.

If a recession occurs, layoffs are likely to be higher and more widespread. And employers can withdraw hires.

But not everyone will be at the same risk. If your role is in high demand, whether as a frontline worker, computer engineer, or senior executive, the chances are that you can find a job, keep it, and even see raises and bonuses along the way.

Buying and selling a house will be different

The real estate market It is not likely to be as badly hit by a recession as it was, for example, in the Great Recession of 2007-2009, which was caused by a housing and credit crisis.

That doesn’t mean the market won’t suffer at all, especially if layoffs resume, said Mike Fratantoni, chief economist at the Mortgage Bankers Association.

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But after two years of double-digit price growth and wild bidding wars, the Home sales are slowly returning to a more normal pace thanks to the rise in mortgages rates, which make homes less affordable for buyers.

Looking ahead, said Fratantoni, “we expect the unemployment rate to rise by a medium-low amount, which, coupled with the accessibility challenges, will reduce demand. [for homes]. ”

This means that home sellers will no longer be able to value their properties 15% higher than what their neighbor’s house just sold for. They should be prepared to accept any buyer unexpected in house offers. And they should expect their home to take longer to sell.

Oh, and appearances will matter again.

“Tidy up a bit to get it ready for the list … We’ll go back to a place where it matters if your home is in good condition,” said Fratantoni.

For homebuyers, compared to the overwhelming frustrations of recent years, “it will be a much better experience,” he noted. While it will become more and more expensive to take out a mortgage as rates rise, buyers will face less competition for each property. And when it comes to deciding whether to bid, “they may have a couple of days to think about it instead of hours,” said Fratantoni.

Ways to dab yourself now

While you can’t control the business cycle, you can take some steps to mitigate the potential negative effects a recession could have on you.

Secure your emergency cash: For single-income families, California-based certified financial planner Jamie Lima of Woodson Wealth Management recommends having 12 months of living expenses on hand in case of job loss.

For dual-income families, he recommends six months, as both earners are less likely to be fired.

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If you don’t have much right now, cut some non-essential expenses and add the money you would have spent to the kitten.

And if you own your home, consider getting a home equity line of credit before rates rise again, as it can help top up your emergency reserves as long as you can resist exploiting it for something else. Lima said.

Test your financial plan: In the event of a recession, you could get out of it unscathed. But you can’t assume that in advance. What you can do is figure out what resources you have to handle a worst-case scenario, such as job loss or illness, Lima said.

“If you haven’t had a job for a year, what does it look like? What are your contingency plans? … Now is the time to think ‘What should I do?'” He said.

Improve your odds of staying busy: You may not be the highly sought after cybersecurity specialist every Fortune 500 company wants. But if you make yourself indispensable in your current job, perhaps taking on extra assignments, you could reduce your chances of being fired if it comes to this.

Or, you might consider a new role that is less susceptible to layoffs when the economy is shrinking. “If your job is in an industry or occupation where revenue depends on buyers with the ability to postpone their purchases, immediately start looking for jobs for positions where that isn’t the case,” said Lakshman Achuthan, co. – founder of the Economic Cycle Research Institute, who thinks there is a real risk that a recession could be longer and deeper than many expect.

Watch your cash flow carefully if you own a small business: Small business owners should keep spending as flexible as possible, said Ben Johnston, chief operating officer of small business lending firm Kapitus.

The idea is to protect yourself in the event that demand drops in the coming months.

“This could mean [negotiating] More flexible payment terms with suppliers, “Johnston said. Or it could mean avoiding a long-term commitment to new expenses. So instead of buying new equipment or hiring a full-time employee staff to take advantage of a new business opportunity today, consider renting the equipment or hiring someone as a contractor.

“If you’re not sure how strong the economy will be in a few months … look for temporary rather than permanent forms of expansion,” Johnston said.

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