We think it’s safe to say that 2020 is an unforgettable year for all of us. It marked the advent of COVID-19 pandemic which caused a significant decline in economies around the world. The National Bureau of Economic Research (NBER) stated that, “at the end of 2021, we are no longer in a recession. The 2020 recession only lasted two months, making it the shortest U.S. recession on record.”
Recessions create unemployment, which then causes people to cut their spending, which then causes businesses to go bankrupt. Assets lose their value and finding a job becomes challenging. It can also cause people to lose their homes when they can’t pay for mortgage or rent.
To protect yourself financially and prepare for the worst, whether you’re a buyer, seller, landlord or tenant, it is helpful to know these tell-tale signs a recession is on the way, thanks to our source, Mint Life.
Recession Indicators
Increased Unemployment
If there is a sudden rise in unemployment levels, it can mean a recession is underway. This is because when people lose their jobs, businesses might be closing or losing revenue. In turn, unemployed workers will have less money to put into the economy, which can lead to a cycle of declining GDP.
Inverted Yield Curve
The yield curve measures the relationship between the interest rates of short-term and long-term fixed-income securities issued by the U.S. Treasury. An inverted yield curve occurs when short-term securities’ interest rates exceed the interest rates of long-term securities, which can suggest a pending economic recession.
Rise in Credit Card Debt and Late Payments
Consumers who spend their money help fuel the economy. However, when using credit cards, they can fall into debt if interest rates are high, making defaults and bankruptcies more likely. When this happens, it can trigger a recession.
Poor Stock Performance
The stock market is extremely volatile, which means it’s not always a great indicator of a recession because drops are somewhat common. However, if poor stock performance continues for an extended period, a prolonged bear market can lead to a recession.
Consumers Losing Confidence
Consumers are the backbone of the economy—without them, the economy would plummet. When consumers lose faith in the economy, they may be inclined to spend less due to financial stress. When spending slows down, it can be a sign that a recession is looming in the future.
Drop in Leading Economic Index
Every month, the Conference Board publishes the LEI, which looks at factors like unemployment insurance applications and stock market performance to predict future economic trends. If the LEI shows a decline, it can be a warning sign that a recession is on its way.
Recessions are unpredictable so it’s a good idea to keep these indicators in mind. If you are falling behind or will fall behind on your mortgage, it is important for you to understand your options. For advice regarding your mortgage and real estate market, please do not hesitate to contact the team at Broadpoint Properties.
