Lately, we have been reading more and more articles, in all kinds of news media, about the U.S. economy entering a recession in the second half of 2023. This has prompted us to write a short entry on the topic. Mind you, our specialty is extending private money loans backed by real estate, and we still do not have a crystal ball to predict the future (L.O.L.). Yet, many of our client's business initiatives could be hurt in a recessionary environment. So, we think this context deserves some attention on our part.
At AMI Lenders, we are of the opinion that the U.S. economy, and certainly the Texas economy, will experience a modest recession in the third and/or fourth quarter of 2023. How can you shore up your investments/money/financial planning to weather the storm (i.e., a slowing or even contracting economy)? We might not have all the answers, but after briefly recapitulating what many experts think today on the looming recession, we can try to offer some pointers to our faithful readers.
What the experts are thinking
At the end of February, many media outlets reported almost the same day, as headlined by C.B.S. News, that the "U.S.U.S. recession expected to start later than previously predicted."[1] As reported by C.B.S. News: "Fifty-eight percent of survey panelists continue to believe a recession is likely to occur in 2023". At the article's end, C.B.S. noted that:
"… inflation shot back up in January after weakening for several months, fanning fears that the Fed will raise its benchmark rate even higher than was previously expected. When the Fed lifts its key rate, it typically leads to more expensive mortgages, auto loans, and credit card borrowing. Interest rates on business loans also rise. Tighter credit can weaken the economy and cause a recession. [2] Economic research released Friday found that the Fed has never managed to reduce inflation from the high levels it has recently reached without causing a recession."
On month later, Mortgage Professional America (M.A.P.) reported in their Newsletter that Fannie Mae's Economic and Strategic Research (E.S.R.) Group "now anticipates a modest recession to start in the second half of 2023 instead of the previously forecasted second quarter of the year. The group believes the recent bank failures could catalyze an already precarious economy into recession, and the potential for tightened lending standards among small and midsized regional banks, weakened business, and consumer confidence." [3] The M.P.A. article states that the E.S.R. Group does not expect a financial crisis like the one which occurred in 2008 after the Lehman Brothers collapse. On the positive side, the E.S.R. Group mentions that pent-up housing demand could soften the recession's blow to the housing sector.
Considering the recent news, one must batten down the hatches; rough weather is expected!
Here is some advice you might want to consider.
As you know, a recession means there will be an economic slowdown. This means jobs could be lost, investment projects put on hold, and generally less economic activity going on everywhere. Most experts agree that better ways to strengthen your finances include "beefing up your emergency savings, paying off any high-interest debt, and developing alternative income streams." [4] These initiatives could be dismissed as "standard textbook advice," yet they are still highly relevant today.
- Set aside an emergency fund that covers four to six months of living expenses. This will help you lessen your anguish level if a lousy scenario materializes for you (for example, being laid off). It also creates in you a discipline to review your spending and saving. Maybe you can stop spending on things you are not using or enjoying.
- Prioritize paying off high-interest debt, including paying more than your current monthly amortizations. Should you be in a situation where you, unfortunately, fall behind in debt payments, immediately reach out to your creditor and ask for some type of contingency plan or what is known as hardship concessions. It will be better in the long run than having your credit score ruined, on top of having to pay late fees or penalties.
- Generate alternative income streams, which could mean taking on an additional part-time job in order to at least have that revenue stream in case of a job loss or spending some of your free time on some type of business initiative (for example, starting a small online store or a "side hustle" like flipping cars on the weekend, among other ideas).
Summary
As written in the W.S.J. article, we previously quoted: "The best strategy is always to prepare for recessions. Which means now is as good a time as any to get started." For example, suppose you are running a balance on a high-interest-rate credit card. Your emergency fund is not as large as it should be in that case. You have some equity in your house; why not talk to us about refinancing your house through a home equity line to pay off your credit card debt and beef up your cash at hand?
If you have decided to refinance real estate in the Houston area, choose to consult with AMI Lenders as we are one of Houston’s fastest closers and premier private mortgage lenders, and could become your financial ally. We fund our own loans and are able to move as fast as the law allows. Borrowers in Houston will also have a hard time finding lower rates for hard money or private loans than those that we offer. We want our customers to succeed and take advantage of the financial opportunities offered by real estate investments. Visit our website today and fill out an application for a loan backed by real estate.
[1] February 27, 2023: https://www.cbsnews.com/news/us-recession-nabe-forecast-survey-business-economists-push-back/
[2] Underlining here and afterward is ours.
[3] March 27, 2023: https://www.mpamag.com/us/mortgage-industry/market-updates/bank-failures-may-tip-us-economy-into-recession-fannie-mae/440800?tu=8972a73d-39c2-466b-83bc-9289101f702f&utm_campaign=&utm_medium=20230331&_hsmi=252593535&_hsenc=p2ANqtz-_6f7VqPGr8b906rXFdinJE0wc-rwibXpz4XAINx7shDcg15ZJFbnvnT53OrZL9FC9QtlOsQWAbbdnt0_xhbjzz1D-q-w&utm_content=8972a73d-39c2-466b-83bc-9289101f702f&utm_source=
[4] Wall Street Journal, https://www.wsj.com/articles/what-if-anything-can-you-do-to-prepare-for-a-recession-11673493443
