by Rick Newman
Everybody's aware of the pain caused by a recession: Companies lay off workers, jobs become hard to find, and those who remain employed often have their wages and benefits frozen, or even cut. General anxiety leads millions of consumers to hunker down and stop spending, which slows the economy even more.
But recessions always end, and in most downturns, the majority of consumers actually fare OK. For people with secure jobs, ample savings, or a strong financial safety net, lean economic times can even represent an opportunity to snap up bargains and exploit newfound leverage in a buyer's market.
As with all financial decisions, trying to time the market and guess where the bottom is can be risky. But with a bit of luck, smart consumers, abiding by the usual prudent caveats, can turn a downturn to their advantage, whether seeking fire sales on electronics, negotiating more responsibility at work, or buying a home. Here's how:
Call the shots when buying a house. Prices in many markets are falling, of course, and while buyers need to be as careful as ever about speculating, those in for the long haul can find some great buys. It's critical to research sales of comparable homes, remodeling records, and other data available at sites like zillow.com and trulia.com. In addition to falling prices, buyers may be surprised to find that with activity drying up, they suddenly have the power to dictate the terms of a deal: Agents may be willing to cut commissions, sellers may agree to cover repairs or other costs they would have dismissed just a year ago, and contractors eager for work might lower their fees for additions or other home improvements.
Buy a distressed property. As an unfortunate outcome of the housing bust, more than a million foreclosed and distressed homes are likely to hit the market this year. It's obviously unpleasant when families lose their homes—but somebody needs to buy them, sometimes at deeply discounted prices. Buyers of distressed homes usually end up dealing with the bank that has repossessed the home, not with the original owners. If you wait for such properties to show up in traditional listing services, you'll probably miss out. Better places to look: the websites for banks and county offices that would know about foreclosures. Real-estate agents plugged into local happenings should also know.
Foreclosure deals are riskier than other real-estate transactions. Properties offered at public auctions often sell for more than they're worth, so buyers can't just assume that if it's up for auction, it's a steal. Buyers may not have time to conduct a thorough inspection or do other due diligence. Insiders may grab the best deals before they ever become public. But for careful buyers who do their homework, there may be plenty of opportunities.
Borrow cheap. True, banks have reined in loans to riskier borrowers, but rates are still historically low, and they might go lower still this year if the Fed continues its rate-cutting ways. So for people with good credit, it's a great time to borrow. That goes for mortgages, obviously, but also for loans people can use to buy a car, ramp up a small business, or remodel their current home.
Refresh your wheels. Automakers are going to need your business in 2008 and will increasingly offer deals to lure buyers into showrooms. Default rates on auto loans have been rising just as they have for mortgages, which means lenders are shunning risky borrowers but wooing those with good credit. And with overall sales slipping, automakers have already started upping rebates and other deals, even on popular models like the Toyota Sienna minivan, the Lexus RX350 SUV, and most pickup trucks. Incentives should continue to improve, predicts Jesse Toprak of Edmunds.com. And cleverly designed vehicles like the Kia Rio5, Nissan Altima, and Hyundai Santa Fe offer a mix of quality, thriftiness, and fun that make them great cars for lean times.
Boost your value to your employer. There's probably little you can do to prevent layoffs at your company. But if they happen, and you're one of the survivors, there are several steps you can take to enhance your standing with the boss. Many times, after layoffs, there's a kind of ghoulish scavenging for the spoils: newly vacant offices, stylish furniture, even phones and staplers. Don't be so crass—or narrow-minded. Instead, figure out what your company may have lost in the ax-wielding, and step in to provide it.
If the sales force has been reduced, for example, there might be key accounts that need to be salvaged. Ask if you can take them over. Many times, during layoffs, companies get rid of specialists who were nice to have during flush times but too costly when it comes to pinching pennies. Can you replace part of the skill set that just went out the door? If so, it might not bring rewards right away. But if you enhance your value to the company, you'll be at the head of the line for a raise or promotion when things improve.
If you do end up out of work, there are more opportunities than ever to start a business as a consultant, find flexible part-time work, or set up a Web operation. Yes, it's easy to talk about "rebranding" yourself and starting a second or third career. But the fact is, trends like telecommuting and flextime have made companies—and customers—more open than ever to creative work arrangements. Take advantage of it.
Pick up some cheap electronics. Fire sales by bankrupt retailers are the obvious place to look, but with rising home foreclosures, expect a flood of used appliances and electronics on craigslist and other secondary marketplaces. Buying somebody else's TV or iPod can be tricky, needless to say, since there's often no way to measure mileage or tell if there's damage to internal components. Here are some rules of thumb:
A used plasma or LCD television ought to be a pretty safe buy; if there's a problem, most likely you'll know just from the picture quality. Desktop PCs and Blu-ray DVD players might be worth buying if they're substantially discounted, less than a year old, and bear a decent brand name. For laptops, don't buy anything more than three months old. Flash-based iPods and MP3 players are pretty durable; just check that the LCD screen is intact, the USB port is clear—and the device works.
Avoid projection TVs, most computers, digital cameras and camcorders, standard DVD players, and MP3 players that rely on a hard drive for storage. In general, these types of devices have lots of moving parts that can easily wear out, or they rely on machinery that's costly to repair if it breaks, and not worth it. Also, skip newer DVD players in the HD DVD format, which Toshiba has just announced it plans to stop developing. Times are tough enough. Don't make it worse by investing in obsolescence.