How the recession of 2023 will differ from 2008 and how you should prepare differently

The hyperinflation of the early 1980s provided the blueprint for the Fed’s operations today. To cool the overheated economy, the Fed raises interest rates and tightens the money supply. This leads to economic contraction and ultimately back-breaking inflation at the cost of recession.

That’s how it went then, and today’s Fed is on the same path toward what many see as an inevitable economic downturn.

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Forbes predicts the storm will hit in late 2023 or early 2024. His rationale is that history shows a one-year time lag between changes in monetary policy and the real-world economic impact of those changes.

Others predict the recession will arrive earlier, around the middle of the year – but one way or another, there is a strong consensus that 2023 will bring economic turmoil.

The word “recession” conjures up images of 2008, when foreclosure signs stood like tombstones on every front lawn on the block in the hardest-hit neighborhoods. But the recession of 2023 will likely play out differently and will require different plans and preparations to survive.

Unlike 2008, Current Housing Market Fundamentals Are Sound

In the run-up to the Great Recession, banks readily extended cheap and easy loans to subprime borrowers to finance risky and irresponsible subprime mortgages under the laxest supervision. The result was a housing bubble that left banks and investors with trillions of dollars in worthless mortgages and mortgage-backed securities when the bubble burst.

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Inflation drove the housing market to record highs in 2021 — but it wasn’t a bubble. Supply chain problems, inventory shortages, the lumber crisis, the COVID shutdown, record low interest rates, and the rise of remote work have intensified inflationary pressures — but none of these pressures indicate the widespread rot that supported the housing market just before 2011. The Great Recession.

“It’s not like 2008 because the growth we’ve seen in the last few years has not been based on ARM mortgages going to people who can’t afford them,” said real estate professional Thomas Satas, founder and CEO of Windy City HomeBuyer. “We will still see people upside down in their mortgages and some foreclosures, but that will be part of what we experience then. We have already seen the beginning of this market correction and we know that properties will continue to lose value. But this is more of a correction than a recession.”

If It’s a Fix and Not an Accident, You Have a Profit

The events of 2008 were very fast and turbulent; however, according to CNN, Moody’s and Goldman Sachs predict that 2023 will not see a crash like the one that crashed the global economy in 2008. it stifles inflation without stifling growth.

Either way, these more moderate scenarios provide opportunities to make money.

Satas said many of his peers were shorting real estate-focused stocks in anticipation of a recession already underway. But short-term REITs and real estate ETFs are only one strategy for success.

“My personal plan to take advantage of the downturn is to wait until we see the bottom and buy some properties,” Satas said. “It’s heartbreaking that people sometimes lose their homes, but it’s better to help people get out of upside-down mortgages that help businesses than to leave them stranded.”

A Recession Will Stop an Unstoppable Job Market

Unemployment reached 10% in 2009 during the Great Recession.

The December 2022 jobs report showed that the seemingly invincible job market continues to strengthen despite inflation, bearish stocks and a cooling housing market. But if there is a recession, unemployment will definitely increase.

Whether it will reach double digits again is pure speculation, but there are steps you can take now to insulate yourself from the risk of job loss at the end of the year.

“If you’re worried about job security during a recession, it might be a good idea to focus on building your skills and experience,” said Andrew Lokenauth, founder of Fluent in Finance, a senior investment and banking professional at Goldman Sachs. AIG and other major institutions. “It can make you more valuable to your current employer or make you more attractive to potential employers in the future. Additionally, consider networking and building relationships within your industry, as these relationships can be a valuable source of support and opportunities during tough economic times.”

Keep your job if you can – and maybe start planning another one

According to Fortune, it would also be wise not to change jobs now if you can help it. If the recession comes early, you can rush to look for work during a contracting job market. Even if you get a job before the recession hits, you’ll be the lowest person on the totem pole at your new job and the most vulnerable to layoffs.

The good news is that people today are better prepared for a tough job market than they were in 2008. Side hustle culture was in its infancy then, but today the gig economy is a force of nature. By building a side hustle now — or at least planning one — you’ll have at least some steady income you can rely on in the event you lose your job in a few months, so you’re not stuck relying solely on your savings.

Good Financial Hygiene is the Best Defense

One thing that is consistent in all recessions is that it is always better to be at your best during the storm.

“To recession-proof your finances, consider paying off your expensive debt as soon as possible,” says Andy Kalmon, CEO of employee stock purchase plan platform Benny. “An important thing to consider going into a recession is your credit score. When entering a recession, an individual’s credit score is even more important because a recession puts people in a greater position where they need to take out loans or debt. One of the main ways to maintain a good credit score is to make consistent payments. Don’t stress yourself out by paying the full amount right away, but always have money to put toward monthly payments.”

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This article originally appeared on How the 2023 recession will differ from 2008 and how you should prepare differently

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