The Good News of Recession

$That was supposed to be going up, wasn\'t it? by rednuht$

Before we can talk about the good news of a recession, lets define exactly what a recession is:

”In macroeconomics, a recession is generally associated with a decline in a country’s real gross domestic product (GDP), or negative real economic growth. According to widespread definition, a recession occurs when real growth is negative for two or more successive quarters of a year.” – Wikipedia

The biggest problem with current economy is that there great debate on whether we are in a recession or when it might of started. So lets forget about the guessing game of a recession and take a look at few facts.

Since the 1940′s there have been 11 recessions. On average the have lasted 10 months. The good news on past recessions is not only are they short lived but the economy is generally already recovering by the time we declare that we are officially in a recession.

More good news on recessions. According to a 2007 report from The Wall Street Journal the stock market has actually rose seven times. Further more, of the last 11 recessions the market has seen returns at a 3% average.

So if we are in a recession now, what can investors take advantage of?

Interest Rates: Individuals that have equity in there property, this is a great time to do home equity lines of credit (HELOC). Heloc’s are tied to prime and that is currently at 5.00%. While most individuals just rolled their eyes and thought about how Chase, Wells Fargo and many other national lenders only go to 65-80% of the value of their property. There are still a number of Portfolio lenders out there that still go to 95-100% of the value of your property. See my other article about “How to Find a Portfolio Lender” if you are curious.

Awareness: While a recession does not effect everyone in a the US, it certainly can create awareness. This awareness can lead to individuals paying closer attention to their personal finances. By this I mean, purchasing things one can not afford, paying down unsecured debt and actually saving money.

Rebound: Historically the economic cycle has never failed. It cycles both up and down, and there have been winner and losers in each cycle. From a real estate prospective we can all predict that the market will return to normal. Investor and home owners can argue about what normal is, but when appreciation returns to your market, that is a least a starting point. The good news that every market has begun to see this return of appreciation. Across the board you can find major resets in housing prices, mostly facilitated through foreclosures and short sales. While these foreclosures and short sales are a travesty to the individuals going through them, it is an opportunity for others. 92% of the US are not apart of the foreclosures, this along with a new affordable price point will bring back the first time home buyers and appreciation.

While there is nothing any one person a can do to change a recession there is plenty one can do to prepare for one. Some will reduce their expenses, some will save money and others will find new affordable homes. But we should all raise our awareness and plan for the future, do not be scared there is always good news to find.

Got questions about this or other real estate topics? Ask on the BiggerPockets Forums.

Article Author: Troy Schuricht

Troy has written 30 articles for us.
Visit Troy's Website: http://www.cfs-mortgage.com/

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{ 2 comments… read them below or add one }

1 Tom July 24, 2008 at 11:06 am: Another “advantage” of a recession is that you’re more inclined to find good deals as a result of other people having to unload their assets. Real estate is probably a classic example as far as foreclosures etc are concerned. But even in areas where foreclosures aren’t that prevalent you’re still likely to find desperate sellers.
2 grumpy July 24, 2008 at 10:13 pm: I earn minimum wage, what can I do to prepare for a recession?

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