Economists officially define a recession as two consecutive quarters of negative growth in gross domestic product (GDP). This is a significant decline in economic activity spread across the entire country.
A short analysis of how recession might affect our families and the positive perspective at the end of all
But, how does affect you as a home owner with a mortgage?
There are a number of different scenarios and a solution to a single scenario should not be considered as a solution to all.
The impact of an economy in recession, besides the slowdown of the industrial production and manufacturing, might be a greater number of job losses affecting first the low levels of a work force, like in retail positions, service industry as the consumer spending slows down, due the decline in real income.
So a small business sees less dynamism in sales ,products may stay longer in shelves as demand of the products slows down as well, obtaining a line of credit now should be considered to improve cash flow
Large companies may stop hiring or even reduce workforce or reduce benefits and other alternatives seeking to cut costs.
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In regards to credits, as income from sales or salaries decreases, repayments to debts may suffer the same effect, damaging credits and leading to reduction of possibilities to obtain new credits or even to keep existing ones, seriously affecting the cash flow in a family or business.
Borrowers with current mortgages with fixed rates, may be more at peace than those with a variable rate if the devaluation of the currency persist, as the bank of Canada may be dragged to increase the prime lending rate and mortgages with variable rates may become un-affordable suggesting an early refinancing early rather than late may be the best to do.
For those who are currently renting and planning to finally purchase their home in the near future, and their source of income is not at risk of being lost, the best advise might be to accelerate their plan as much as possible (see mortgage assessment) and secure a mortgage with a low fixed mortgage rate and take advantage of the first time home buyers credits offered by the government.
The good part of the story is that history shows that those who were prepared to stand during recessions, may become stronger once the economy rebounds, and it will, there is no question about it. They be stronger as some competitors may fade or even be out of business because they were not prepared.
Recessions don’t last forever be prepared!