Throughout 2015, we saw a steady decline in oil prices, commodity prices and a gradual stock market decline. I fielded several questions by concerned investors about the state of the economy. A lot of people are suspicious that the next catastrophe is just around the corner. Experts believe that the U.S. economy goes through a recession every 7 to 8 years and the last one was in 2008, which means they believe that the U.S. economy is ripe for another recession.
2016 has started off terribly for the financial market. The US stock market has seen the worst one week in history to start off a year. The Chinese stock market has even fared worse. The Shanghai Composite is down 27% just this past week. Investors are increasingly concerned about a looming recession. I do not know whether there is a looming recession or not, but I can advise on how to prepare for one just in case.
- Start a side business: As we all should remember back in the last recession, unemployment was upwards of 10% and most economists believe that the real unemployment when you factor people that left the workforce was over 22%. In order to avoid a personal disaster, starting a side business will help cushion the blow if there was ever another mass layoffs.
- Save cash: Since there are signs of an impeding recession, it will be prudent to increase savings for the foreseeable future. This is not the time to increase consumption. Having excess cash can help you weather the storm or better yet, help you capitalize on the discount in asset prices that comes with recessions.
- Buy real estate not rent: There is a common misnomer out there that it is safer to rent during periods of uncertainty. That is absolutely false. First, it is often cheaper to buy than rent unless you plan on downgrading your home significantly. Second, if you are renting and lose your job which might lead to not paying your rent, you will likely be evicted right away. However, if you are buying, it takes several months before a bank will foreclose on your home, and you can always catch up on your mortgage when things become better. Thirdly, if you are renting and you lose your job, you will not be able to rent or buy elsewhere because you have no income. In conclusion, it is safer to buy a home rather than renting during times of uncertainty. If you are renting, I strongly urge you to consider buying at this time.
- Maintain Flexibility: It is important to maintain flexibility during times of impending catastrophe. There are tendencies to be massive layoffs in certain sectors of the economy, but other sectors might be growing. Don’t be afraid to learn a new skill and change sectors. For example, despite significant slide in the oil and gas sector, the healthcare sector has seen unprecedented growth.
Sincerely,
Victor Lofinmakin
Top Producing Realtor
Tarl Anderson Properties
(832) 788-1782