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0:00 – Intro
0:38 – What is an economic recession?
1:18 – What happens during a recession?
1:35 – What role does the real estate market play in an economic recession?
2:00 – How do banks and financial institutions respond to a recession?
2:49 – Is there any upside to an economic recession?
3:30 – How does the Federal Reserve respond to an economic recession?
3:48 – What causes an economic recession?
4:55 – Psychological factors that contribute to a recession.
5:20 – Learn more about how recessions work!

What Is a Recession?
A recession is a notable and widespread decline in economic performance that persists for more than a few months. It is generally a time when the economy experiences at least two successive quarters of reduction in the gross domestic product (GDP).

The National Bureau of Economic Research (NBER), a private, non-profit organization that determines the start and end dates of U.S. recessions, offers a more flexible way to define recession-—“a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

During a recession, business owners often face a decline in their sales, which could lead to layoffs and even a declaration of bankruptcy. As businesses struggle and fail, employers are forced to cut costs and lay off their employees, which leads to a rise in unemployment. Although some employees may be able to keep their jobs, they may have to deal with wage and benefit cuts, and negotiating salary increases may be a struggle. These circumstances may affect an individual’s ability to pay bills and settle debt, such as mortgage loans.

The real estate industry typically suffers from a drop in property values during a recession, because when houses are listed for sale, they tend to stay on the market for a longer period before selling.

When a recession causes rising unemployment and stagnant household incomes, banks and lending institutions become more cautious and restrictive in the amounts of financing and loan approval standards. They may tighten their lending rules and criteria by requiring higher minimum credit scores or a larger down payment. Additionally, paying off mortgages during a recession becomes even more challenging, which is why short sales and foreclosures usually increase during this time.

Although these scenarios are generally bad news for real estate professionals and the industry, they can create buying opportunities. Recessions tend to make the market less competitive since fewer investors and homebuyers have the means to purchase real estate during an economic downturn. This means potential buyers will have time to look at other properties and will not be pressured to immediately pounce on their desired property for fear it will be off the market before they can submit an offer.

With fewer buyers in the market, a seller may be willing to accept offers below their asking price or take the initiative to lower their selling price to make their properties more appealing. With falling house prices[2], buyers can also take advantage of lower interest rates. During a recession, the Federal Reserve often lowers benchmark interest rates to encourage investments. Banks will, in turn, charge reduced interests on loans, including mortgages.

Many economists agree that aneconomic depression and an economic recession have similar causes. However, a depression results in a much more devastating economic impact than a recession. Depressions cause far greater job losses and sharper GDP declines. It also lasts much longer than a recession; for example, the Great Depression of the 1930s lasted 10 years. More often than not, the amount of time it takes for an economy to recover is a major differentiator between a recession from a depression.

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BREAKING: Recession News

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An economic recession is a period of negative economic growth that lasts for at least two consecutive quarters, usually resulting in a significant decline in business activity and employment. During a recession, several key indicators of economic performance can decline, including gross domestic product (GDP), consumer spending, business investment, and employment. This can in turn lead to a rise in unemployment, reduced availability of credit, and increased financial hardship for households and businesses.

One of the primary effects of an economic recession is a decrease in consumer spending. People may become more cautious with their money, leading to reduced purchases of goods and services. This can have a significant impact on businesses, particularly those in the retail and hospitality sectors, as they may experience a decline in sales and revenue.

Another consequence of a recession is a decrease in business investment. Companies may be less willing to invest in new projects or expansion due to uncertainty about the future economic outlook. This can result in lower levels of productivity and innovation, which can have longer-term implications for an economy’s competitiveness and growth potential.

A recession also often leads to an increase in unemployment as businesses may cut back on their workforce in response to declining demand for their products or services. This can result in financial hardship for individuals and families, as well as increased strain on government welfare programs.

The housing market is also typically affected by a recession, with home values declining and the number of foreclosures increasing. This can have a significant impact on homeowners and the financial institutions that hold mortgages, as well as on the construction and real estate industries.

During a recession, financial markets can also experience heightened volatility, with stock prices and other investments fluctuating in response to changing economic conditions. This can make it more challenging for individuals and businesses to plan for the future and can lead to a decline in overall investor confidence.

In response to a recession, governments and central banks may implement various policies to try to stimulate the economy, such as cutting interest rates, increasing government spending, and providing financial support to businesses and individuals. These measures are intended to boost economic activity and mitigate the negative effects of a recession.

In summary, an economic recession can have wide-ranging effects on individuals, businesses, and the broader economy. It can lead to reduced consumer spending, decreased business investment, higher levels of unemployment, and increased financial instability. While recessions are a normal part of the economic cycle, they can have significant and long-lasting impacts, making it crucial for policymakers to take appropriate measures to support economic recovery.