Even though the U.S. has the most powerful economy in the world, the past can bring economic downturns. Many homeowners are worried about the future due to the widespread fallout of the COVID-19 epidemic.
When economic activity drops, house prices drop. This can lead to homeowners losing equity. In the worst-case scenario, homeowners owe more on their homes than they are worth. This can lead to bankruptcy.
It is possible to weather a recession with the right attitude. Here are some tips to help you get through this difficult time.
1. Do not make hasty decisions
It’s good to know that homebuyers are still optimistic, despite the high unemployment rate, low consumer confidence and stock market volatility. According to the California Association of Realtors 81 percent of adult believe that owning a house is the best investment one can make. Further, 96 per cent of homeowners are satisfied with their choice to buy a house (see the infographic below).
Remember that economic downturns can be temporary. Home values can drop in tough times. This will make it more difficult to sell your home on the short-term. These changes are not permanent. A slowing economy is an indication to hang on to your property and be patient. You should also focus more on maintenance of your home. You’ll be prepared to take advantage of better conditions when the housing market recovers, which will happen.
2. Refinance Your Mortgage
Even if you decide to stay in your home during a recession, you can still take advantage of the financial incentives available. Do not jump at the first offer you see. Read the fine print. Refinancing at low mortgage rates is a great way to lower your monthly payments. Make sure that your new rate will be fixed. You should also be aware of the upfront costs involved.
Beware that a new loan could cost you thousands in fees. Making bad choices may also reduce your savings potential. Consider how long you plan to stay in your house, the savings you can expect from a refinance, and if you are getting a great deal.
3. Reduce expenses
cutting costs in other areas is another way to make your home more affordable. Make a budget to ensure you have enough money each month to pay your mortgage. Reduce your monthly expenses by cutting down on subscriptions you don’t use regularly and becoming more energy-efficient. Conserve water by taking shorter showers, and only washing full loads of laundry. Unplug electronic devices when not in usage to save electricity. Use energy-efficient light bulbs. Eat less out and more at home. Work out at home rather than at the gym.
4. Create a long-term plan
When it comes to buying a house, time is an important factor. You have more time to wait for the best selling conditions if you decide to stay. Determine the right time to sell, whether that means waiting until your home reaches a certain price, if you have enough equity to make a profit or using other financial markers. As a homeowner, setting these goals helps you create a long-term strategy.
Consider not only where you want to go, but also how much you will need to pay to get there. It is easier to survive a recession if you focus on the future. You can ask yourself:
- How long would you like to live in your home?
- What do you plan to do after you leave the country?
- When will you be able to pay off your home?
- What do you want to do with your house?
- What is the amount of money you want/need from a sales?
5. Improve your home with an investment
When it comes time to sell your house, adding value with low-key improvements can make all the difference. If property values are temporarily down, you can still add value to your house by doing a few home renovations. Consider these low-cost home improvements if you can:
- Update light fixtures
- Accent hardware such as doorknobs and faucets can be changed.
- Paint a few walls
- Install flower beds and yard improvements
- Finish any minor repairs that you have been putting off
These projects are inexpensive and can yield a return when you decide to sell your house. Focus on small updates rather than major remodeling or adding new features to your home. When you start updating your home, keep in mind the aesthetic value. Neutral and classic colors and styles will appeal to more buyers and increase resale values.
6. Diversify your investment portfolio
Although it might seem counterintuitive, investing in real estate when the economy is down may actually be a wise decision. During recessions, the strongest buyer’s market often appears. The key is to find low-priced properties that have desirable features. Understanding your costs in owning a property is important, regardless of whether you are buying the property to fix it up and sell it, or renting it out. Each of these options has pros and cons. Renting out property in a recession can be a good way to earn extra income. Rent payments remain constant and do not fluctuate in line with the stock exchange. You’ll still need to manage tenants. Decide what is best for you.
7. Rent your home
Consider making your home work for you. There may be an opportunity to rent a room out in your home for cash. You can make money by renting out an unoccupied guest room, basement or in-law apartment if you live in an area that is popular with renters. Urban dwellers can rent out their driveways as parking spaces. You can find parking apps where you can rent out a spot. Rent out your unused storage area through an app such as Neighbor.
Selling your home is an option if you find that owning a house during a recession becomes too burdensome. There are still opportunities to make money, even if prices aren’t as high as they would be in a better economic climate. You can still sell your home even if you feel the market is unstable. You can either work with an buyer who will buy off-market or use Sundae’s marketplace to sell homes in need of repairs.