GREENSBORO, N.C. — With all the talk of a possible recession, it immediately makes your mind go back to 2008.
The financial crisis spanned 18 months. People lost their jobs, their homes, and retirement accounts dipped so low, that you thought you might be working well into your golden years.
No one wants to go back there. So, we all want to know, is 2022 headed for a repeat of 2008? Are we on a crash course with another big recession?
We're going to Dig In 2 the health of our economy, but first, let's get on the same page about what a recession is.
What is a recession?
According to the Federal Reserve, “A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”
That's a whole lot of economic jargon that probably doesn't make a ton of sense.
Think of it this way. When a recession happens, the economy screeches to a halt for the span of several months. People lose jobs, demand plummets and wages could get cut. So, let's answer another big question.
Are we in a recession now?
“Well, the leading economic indicators is telling us, no, we’re not in a recession right now," Chief Economist at the Conference Board, Dana Peterson, said. "But the reason why some people are saying that is because it may feel like one. Inflation is super high. Prices for everything from food, to gasoline, to housing, to going to the movies are just so elevated right now. And a lot of that’s being caused by factors that are arguably outside of the United States."
The Conference Board analyzes trends in manufacturing, housing, the stock market, and even the movies. The latest report went out Friday.
“There’s trouble ahead and that’s something that we shouldn’t ignore. But right now, things are more or less OK. Most people are working,” Peterson said.
She noted that a steady paycheck is helping consumers to keep consuming, even as they pay high inflation-driven prices.
Recession was the talk of the table for Biden Administration officials over the weekend.
"I expect the economy to slow," U.S. Treasury Secretary Janet Yellen said Sunday. "It's been growing at a very rapid rate and the economy has recovered and we have achieved full employment. We expect a transition to steady and stable growth, but I don't think a recession is at all inevitable."
But former US Treasury Secretary for the Clinton Administration, Larry Summers, expressed his doubts.
"The dominant probability would be that by the end of next year (2023), we would be seeing a recession in the American economy," Summers said Sunday.
Summers isn't alone in that feeling. According to a recent CBS News poll, nearly 70% of economists who responded think the United States is headed toward a recession.
How to prepare
So, we're not in a recession. It's not inevitable. It's also not impossible.
What should you do now to prepare just in case?
Experts say it's hard right now with high prices, but try to put your money away. It's always good to have an emergency fund. Pay down high-interest debts.
You may have less disposable income if a recession happens, so you want as little debt as possible.
Banks and recession
The next big question - should you pull your money out of your bank?
Experts urge you not to panic. Consumer Reports said a savings account is one of the safest places to keep your money. Federal insurance covers up to $250,000 per holder. That means married couples with a joint account have protection up to $500,000.
If you have more than that in savings, talk to a financial advisor. They'll tell you the best ways to protect your money.
Prices and recession
Next, what would a recession mean for prices? Experts say historically, prices drop in a recession. For example, gas prices dropped by 60% in 2008.
That sounds good. Economists say it's not, because it also means people are losing their jobs. When prices are slashed to get people buying, companies have to find a way to cut costs.
Others might see an unexpected pay cut.
401(k) and recession
Some people might want to know, should you cash out your 401(k) before a recession?
Financial advisors actually say now is the best time to maximize your 401(k) contributions. Since the market is doing poorly, it's a chance to buy low.
There's a pretty simple rule to follow too. Remember, the younger you are, you can afford to take more risk in volatile stocks. The older you are, your portfolio has to be more conservative with guaranteed fixed income.
Housing and recession
It’s no secret that housing prices have been crazy for months. Demand got really high as we moved out of the pandemic. That drove prices through the roof. Plus, the Federal Reserve just raised interest rates again. Mortgage rates and interest rates don’t move together; however, the Fed’s rates can influence mortgage rates.
Kristenia Hargrove is a real estate agent. She’s also a homebuyer right now. She said trying to break into the market keeps her up at night.
“Trying to find a house with the mortgage prices going up and gas prices and everything else. It’s just been a bit of a nightmare, honestly,” Hargrove said.
Mortgage rates just hit a 30-year high. Between higher prices and higher interest, the average homebuyer now pays $500 more per month than they would last year or $189,000 more over a 30-year loan.
“That creates a significant affordability challenge. Not only because you have very high rates of house price growth, you also now have, you know, a pretty rapid increase in mortgage interest rates,” Len Kiefer, the deputy chief economist at Freddie Mac, said.
The housing market has two big issues for homebuyers: high prices and low supply.
Some people have called it a housing bubble. And they’re worried it’s going to burst.
The Dig In 2 It team has talked to several economists. They all said we’re not in a housing bubble.
“For a housing bubble to exist, we would have to believe some kind of story about the price rather than ignoring the economic fundamentals that cause the price of a house to be so high. In this case, I think the economic fundamentals justify the increasing prices that we’ve seen,” Dr. Alfredo Romero, an economics professor at North Carolina A&T said.
Romero said home-buying rules changed after the 2008 recession and market collapse.
That makes a housing bubble less likely to form again.
That doesn’t mean we can’t see a big drop in home prices. If the economy does really take a tumble, we can expect demand for houses to dry up fast. That’d lead to a drop in prices.
Realtor.com says if you’re thinking about selling a home, do it now.
You can sell high and try to buy low when prices drop.
Just remember, there’s no guarantee you’ll be able to find an affordable option because of tight supply.
The fact that 70% of economists think we're headed to a recession isn't good. But we have to be careful not to panic. Recessions can become self-fulfilling prophecies. Just like when there was a shortage of toilet paper and everyone freaked out and bought 10 packs - then you couldn't find toilet paper anywhere.
The best way for us to get through these trying times is to try to remain calm and remember, we're all in this together.