Key Takeaways. Interest rates usually fall in a recession as loan demand declines, investors seek safety, and consumers reduce spending. A central bank can lower short-term interest rates and buy assets during a downturn to stimulate spending.
The transition to interest rate cuts has led some forecasters to note that recessions often come after the Fed begins cutting interest rates. Indeed, Fed officials have, at times, waited too long in cutting rates amid deteriorating economic conditions, thus allowing an economic downturn to develop.
“The demand for travel and hospitality services typically declines as consumers cut back on discretionary spending,” Sarib Rehman, CEO of Flipcost, said. “To attract customers, airlines, hotels and travel agencies often lower their prices and offer more promotions.”
Buyers could get favorable mortgage rates if they buy during a recession because banks want more people to take out loans. This could potentially be a good thing for current homeowners who want to refinance their mortgages.
Conclusion. The rental market does well during a recession and when home prices are high because most people cannot afford to purchase homes in either scenario. So you really have nothing to worry about as a rental property owner.
Southern California home prices close out 2008 down 35% The long, sharp slide in Southern California home values is all but eliminating demand for new houses.
Recessions have plenty of negative consequences, but they can provide a necessary reset for the markets. Higher interest rates that often coincide with the early stages of a recession provide an advantage to savers, while lower interest rates moving out of a recession can benefit homebuyers.
1. Saving Accounts. There's a good chance you already have a savings account. Like checking accounts, they're federally insured and are generally the simplest and safest place to keep cash in good times and bad.
“Historically, when there is a recession, people start buying less — especially large purchases. So, this means that demand for cars would decrease pretty significantly,” said Ben Michael, director of auto, Michael & Associates. “And, when demand decreases, prices decrease as well.”
As rates drop, banks can also cut back on the interest they pay to savers. So you'll typically see lower rates for deposit accounts, including savings accounts, CD accounts and money market accounts, during a recession.
At the December 2024 Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) lowered interest rates by 25 basis points. This lowers the target interest rate range to 4.25% to 4.5% and reflects the Fed's ongoing commitment to achieving its dual goals of maximum employment and price stability.
Your money is safe in a bank, even during an economic decline like a recession. Up to $250,000 per depositor, per account ownership category, is protected by the FDIC or NCUA at a federally insured financial institution.
The fed funds rate has never been as high as it was in the 1980s. The main reason is because the Fed wanted to combat inflation, which soared in 1980 to its highest level on record: 14.6 percent.
Mortgage refinancing can help you raise cash in uncertain times. Interest rates tend to drop during downturns as the government generally lowers rates to stimulate economic growth. But rates can rise and fall suddenly, and loan requirements may tighten, as lenders react to changing market risks.
The Great Depression of 1929–39
This was the worst financial and economic disaster of the 20th century. Many believe that the Great Depression was triggered by the Wall Street crash of 1929 and later exacerbated by the poor policy decisions of the U.S. government.
What Are the Biggest Risks to Avoid During a Recession? Many types of financial risks are heightened in a recession. This means that you're better off avoiding some risks that you might take in better economic times—such as co-signing a loan, taking out an adjustable-rate mortgage (ARM), or taking on new debt.
Stocks and bonds have relatively low transaction costs, allow you to diversify more easily and leave your cash more liquid than real estate (although the stock market is typically more volatile than the housing market). Meanwhile, real estate is a hedge against inflation and has tax advantages.
A recession is a significant, widespread, and extended decline in economic activity. Riskier assets like stocks and high-yield bonds tend to lose value in a recession, while gold and U.S. Treasuries appreciate.
The industries known to fare better during recessions are generally those that supply the population with essentials we can't live without. They include utilities, healthcare, consumer staples, and, in some pundits' opinions, maybe even technology.
The good news is that recessions generally haven't lasted very long. Our analysis of 11 cycles since 1950 shows that recessions have persisted between two and 18 months, with the average spanning about 10 months.
During a recession, economic activity slows. When consumers spend less, the demand for goods and services falls. Once that happens, prices tend to drop, slowing down inflation.
“Even with the rapid price appreciation over the last few years, the likelihood of a market crash is minimal,” NAR chief economist Lawrence Yun said in a November 2024 statement. “Distressed property sales and the number of people defaulting on mortgage payments are both at historic lows.”
A 2024 recession is generally seen as unlikely, but metrics that economics take seriously hint that a recession could occur, perhaps in 2025.
Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners who were unable to pay their mortgage debts.