Could a Less-Expensive Home Be Your Ticket to Getting Through a Recession?

It may be a good time to downsize.

When will our next economic recession hit? There's reason to believe it might happen sooner rather than later.

The Federal Reserve is moving forward with interest rate hikes in an effort to cool inflation. By making borrowing more expensive, the hope is that consumers will scale back on spending just enough to drive down the cost of goods.

But what might happen instead is that consumers cut their spending in a very big way. And if that happens, it means businesses will collect less revenue, potentially leading to layoffs and a period of general economic decline.

However, there are several steps you can take to gear up for a recession. Pumping more money into your savings account is a smart move, as is paying off costly debt so you don't waste money on interest.

But there's another big step you may want to look at if you're worried about a recession. And it's one that more than a third of Americans are exploring.

Could a less-expensive home help you ride out a recession?

A recent Personal Capital report found that 74% of Americans are worried about a potential recession. And interestingly, 37% of Americans are exploring alternate housing options as a means of preparing for one.

It's a strategy worth considering. If you're able to lower your housing costs by downsizing or moving to a less expensive neighborhood, you might have an easier time boosting your savings. And a healthy savings account balance could be your ticket to getting through a recession unscathed. If you're a renter and it's possible to move into a less expensive place, that could make it easier to keep up with your bills in the event that a recession hits and your job is taken away in the process. 

But it's not just renters who should consider lowering their housing costs. If you're a homeowner, and your mortgage and related costs currently eat up a large chunk of your income, then it pays to consider putting your home on the market and replacing it with one that costs less.

In fact, right now, there's still strong demand among home buyers, even with mortgage rates being much higher than they were at the start of the year. That means you may have a prime opportunity to command a generous sale price for your home. 

Is it time to rethink your housing situation?

If you live in a home you love that's affordable for you, then there's no need to rush to move. But if housing currently takes up a lot of your income, then it may be time to consider swapping an expensive home for a cheaper one -- at least temporarily. 

We don't know exactly when a recession will hit or how bad it will be. And to be clear, a near-term recession may not end up happening at all. But if the cost of putting a roof over your head has long been a burden, then it may be time to get out of an expensive housing situation -- especially before economic conditions decline.