Right now, the U.S. economy is in an interesting place. While job growth has been strong, inflation has been rampant. And that's something the Federal Reserve is trying to address.
To slow inflation, the Fed is moving forward with a series of rate hikes this year. And that's apt to make borrowing more expensive across the board.
But as borrowing gets more expensive, consumers are likely to start cutting back on spending, thereby pumping less money into the economy. Once that behavior is sustained for a period of time, it could lead to an economic downturn. And that's the very scenario some experts fear.
Now, without a crystal ball, we don't know whether we'll face a full-blown recession this year, next year, or the year after that. But it's fair to acknowledge the possibility of a near-term recession -- and prepare for one.
For the most part, that means shoring up your finances and boosting your savings as much as you can. But if you own property, it could also mean making one key move.
Could your home save you during a recession?
Whether you're a regular homeowner or a real estate investor with a rental property, you're no doubt aware that home prices are extremely elevated right now. That's a bad thing for buyers. But it's a good thing for you, even if you're not looking to sell your home anytime soon.
Because property values are so high, homeowners are sitting on record levels of equity. And you might be able to tap that equity and use it as an income source during a recession.
In fact, if you're sitting on a lot of equity now, one move you may want to make sooner rather than later is to apply for a home equity line of credit, or HELOC. The beauty of a HELOC is that it's flexible -- you get access to a credit line you can draw from as needed.
So, say you take out a HELOC and economic conditions worsen during the second half of 2022, to the point where you lose your job. At that point, you could tap your HELOC if a need for money arises.
That's an especially important option to have at a time when the stock market is in pretty bad shape. Stock values are down across the board, and they could stay down the entire year -- it's too soon to know. But when stock values are down, the last thing you want to do is liquidate investments when a need for money arises. If you secure a HELOC, you won't have to.
Of course, you don't necessarily have to rush to get a HELOC today. Home prices are unlikely to plunge anytime soon due to the housing market being pretty much starved for inventory. But home prices could start to creep downward if buyers start pulling out of the market due to rising mortgage rates and economic uncertainty. So, for that reason, getting a HELOC sooner rather than later could make sense.
Either way, know that your home could be your ticket to getting through a recession unscathed. And that's something that should hopefully help you sleep better at night.