What does a recession mean to you?

Lately in the news, we’ve all been hearing we are in an economic crisis.  People I talk to at Credit Canada and out and about often say, ”My job is stable; I won’t be affected by a recession.” or “I don’t have money in the stock market; I am safe.”  On the surface this may seem like a valid response to these uncertain times .  Here’s the problem as I see it…a recession is insidious and can affect people in ways that they have not even thought about.  Put it this way, we can all be held hostage by a recession. How, you ask?  Well let’s look at this scenario. You have a job, you are secure and you know that your job is stable and recession-proof. Fine.  However, you decide that you really want to move out of your neighbourhood and put your house on the market. Problem is those individuals who have been affected by the recession may also have their house on the market in your  neigbourhood and they are desperate to sell and there are no buyers; because in a recession people hold back, banks tighten their lending practices and houses sit on the market for months.  Of course, with that goes a drop in housing prices and therein lies the problem. Suddenly that house that you thought was worth $400,000 is no longer worth $400,000 especially when a similar house down the road is on the market for $350,000 and it is not selling.  

Let’s take a different scenario - you have a stable ‘recession-proof job’, you are just starting out, don’t have much saved but want to get into the housing market.  You find a few perfect houses but low and behold cannot get financing because banks have tightened their lending belts due to the recession and consider you ‘too new’ in your job with little assets.   Suddenly the recession has affected you too.  It goes further than this, as creditors take losses due to debts not being paid, interest rates can creep up, lending practices as I have already stated tighten, and the small business owner with a store around the corner from where you live shuts down as he can no longer borrow to keep his business going…and it goes on and on. 

I don’t believe it’s all doom and gloom though. My point of view is that there is a silver lining.  Those set up with good conditions to buy a home, stable job and decent down payment can really get a deal on a house during uncertain times, as can those investing in the stock market when it is low.   Still one is “playing” the market to a certain extent. No one will really know when houses and the stock market will hit rock bottom.  For example, in the late 80’s there  was a fever in some parts of Canada to get into the housing market before it was no longer affordable. People took out mortgages they could not afford and put everything into buying a home. In the early 90’s when the recession hit, these same homes decreased in value by as much as 25%.  As a result, people often lost more than their home and were facing bankruptcy.  The question then as it is now…when will the decline stop and when will be the best time to buy?  Your thoughts?