Not all economic recessions result in a crash of the housing market. Unlike 2008, when the crash was predominantly caused by the housing market, this time around the housing market can be a great tool in bringing the U.S. economy back to normal.
A recession typically results in lower home values because of a decrease in demand for housing and investment properties. Vacancies can increase because of lower wages and unemployment. Real estate in overpriced housing markets may recalibrate. Many metro area home prices have outpaced wage growth.
Who can benefit from a recession? Those who have a high amount of equity, high liquidity, or cash flow. Those who have high credit scores and the ability to put 20% down on properties will also see their buying power strengthen.
“In the event that a recession seems likely, investors should plan to reduce their debt obligations. If you are overleveraged, try to sell certain assets to increase your liquidity and have a surplus of cash on hand in case you suffer a loss of income. Also evaluate the health of the local market and the supply and demand of your asset classes. Nothing is truly recession-proof, but in most cases, diversification across different investment classes will help reduce your risk exposure and limit your losses in a downturn.”