Recession is an economic term that’s buzzing. It started after the pandemic waves slowed down during the last year and seems to be here to stay . No matter where in the world you live, chances are that you’ve noticed that the costs of goods and services have gone up — one of the sure signs of a recession. While economists are still talking about whether or not we are in a US or global recession, the signs point to a downturn in 2023, with a recession extremely likely.
It can be helpful to get a full picture of what a recession means and how long it might last to help you prepare for what’s ahead. This information can be especially helpful if you are thinking of buying or selling a home to plan for your budget and your entire real estate transaction.
What is a recession?
You may be wondering the defining factors of a recession. When experts talk about an economic decline that lasts more than a few months, and to be more specific, two quarters in a row of Gross Domestic Product (GDP) decline, this is a recession. A recession can be in a country, but it can also be spread across the globe. Causes of a recession vary, but climate change, the aftermath of the pandemic, war, and energy crisis, all contribute to a recession.
How does a recession change everyday life?
Even before economists define a recession, you will probably feel it coming, especially if you are in the process of buying or selling a house, or another big life event. For example, mortgage rates will go up with rising inflation or a recession and it can be more difficult and more expensive to secure a home mortgage loan. You may notice restaurants and retailers closing, the costs of services rising, as well as your grocery bill going up. Another clear sign of a recession are layoffs and fewer salary increases at work.
How long do recessions last?
As with any economic shift, there is no clearly defined recession time frame. Looking at past recessions — and in the US, 14 recessions — they occur about every nine years and last for about a year or less. The duration depends on what’s causing the recession, and if that situation ends, such as with the pandemic recession that was primarily felt during the lockdowns. If the situation ends it could mean the end of a recession, but every case is different.
How can people prepare for a recession?
It’s normal to feel nervous about a recession, and preparing for it and knowing what to expect can be your best defense to keep your life going in the meantime. The number one tip during a recession is to cut back your spending and build up your savings. You can also find creative ways to increase your income, and create a financial plan that can help you manage your spending habits.
While there is no clear answer about how long a recession might last, getting prepared for it can help ease anxiety about the unknown.
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