While the shockwaves of the 2007-08 recession continue to reverberate, for the most part, the American economy as regained its feet. Unemployment is down, consumer spending is up, and house prices and interest rates have surpassed where they were pre-recession.
However, while most Americans revel in the positive economic developments, many market experts are concerned over potential warning signs of economic disaster to come. For one, housing prices haven’t merely recovered; they have skyrocketed in recent months, perhaps revealing another housing bubble. Worse, some lenders have fallen back on dangerous mortgage practices, such as accepting exceedingly low down payments and approving ludicrously low credit scores.
In truth, the housing market endures cycles of high and low mortgage prices that last roughly 18 years. If the market follows a pattern that has lasted more than 200 years, we can look forward to a few more years of market expansion, followed by a brief hypersupply phase where construction overshoots demand, and finally another recession. In 2024, there should be another housing bust ― but the impact of that bust depends on how lenders and buyers behave during the booming interim.
Financial experts are all but predicting another market crash, which could devastate homebuyers and homeowners. Fortunately, there are methods you can take to protect your property from the crisis to come.
Have a Stable Job
One of the most fundamental requirements to qualify for a mortgage is income. Trustworthy lenders scrutinize your taxable income to determine whether you have reliable and sufficient money coming in to pay for your home loan. It is possible to acquire a mortgage without stable income, perhaps by applying for “no documentation” mortgages, having a co-signer, or accepting excruciatingly high interest rates, but it is financially safer to find a steady job before buying your home.
Further, an established job is less likely to disappear during a slow economy ― especially if you develop a career that is indispensable regardless of the economy’s health. For example, retailers suffered greatly during the recent recession, and many retail workers lost their jobs; meanwhile, nurses, auto mechanics, IT professionals, and similar skilled workers maintained their income because people continued spending in those fields. Not only will your stable job keep your home secure, it will keep you employed and earning while the housing market does backflips.
Cultivate Your Net Worth
Similarly, having a higher net worth will keep you solvent during an economic downturn. Should your job prove non-recession-proof, you should be able to pull from other assets, such as savings accounts, to pay your mortgage and retain your home. A high net worth is less fragile than income ― and it is more fun, too.
To cultivate your net worth, you should make strong financial decisions when you have the income and market stability to do so. Those who build high net worth tend to boast the same few habits:
- They live frugally within their means.
- They grow emergency funds. At the least, your emergency fund should be able to pay three months of basic living expenses.
- They pay down their debts, starting with the highest interest first. You might consider refinancing or seeking a NJ home equity loan to reduce your debt faster.
- They work to increase their immediate income, taking side jobs or seeking raises.
- They invest their money in long-term index funds. Day trading might seem to offer higher rewards, but it is much riskier than carefully managed, slow-growth funds.
When the housing market does crash, your high net worth will provide a cushion to keep you living comfortably despite disconcerting economic behavior.
Make a Down Payment
It might seem like a waste of money to make a down payment when so many lenders do not require one but down payments are as beneficial to homebuyers as they are to lenders. For one, making a down payment of at least 20 percent allows you to dodge private mortgage insurance, which would increase your monthly payment. In fact, the more money you can put in your down payment, the better, since you will never need to pay interest on that amount. Then, when the housing market turns, you will have a lower monthly mortgage payment and be that much closer to owning your home outright.
Buy Small, Pay Less
Few homeowners truly need as much space as they believe. Instead of looking for a four-bedroom, four-bath for you and your significant other, you should buy a smaller home that better suits your immediate needs. Smaller properties are more recession-proof for dozens of reasons: They cost less initially, and they demand lower insurance payments, taxes, maintenance fees, utility usage, and décor purchases. With a smaller home, you have more money to use to increase your net worth, and you will be less likely to default during the next market crash.