There is no guarantee we will get a recession this year or next.  But as I write this in September 2022, the Treasury yields are indicating a recession ahead.

The 2-year yield has been higher than the 10-year yield for quite a while.  The 3-month yield is close to inverting against the 10-year yield, and it may happen later this month after the FOMC meets and hikes its target rate again.

The first and second quarter GDP came in negative.  Many define this as a recession.  It is a matter of definitions.  If it is or was a recession, it is mild, especially compared to what is to come.

In a true hard recession, there would be a huge fall in demand for luxury items.  In a hard recession, your next-door neighbor won’t be putting in a swimming pool in the backyard.  Your friends won’t be going to expensive restaurants and bars on the weekend, unless they are single and make good money.

There is still too much mania for it to feel like a recession.  There is also a low unemployment rate.  Even though wages aren’t keeping up with inflation, which is a major problem, at least most people who want a job have a job.

Annual price inflation is still above 8% according to the government’s own statistics.  That means, at this rate, prices will double in less than 10 years.  So it seems like most everything is just getting more expensive.  I can certainly vouch for that at the grocery store.

If we hit a hard recession, which I think is likely in the next year, then demand will fall for certain things.  This may not be the case for food.  Necessities will still be in high demand.  After all, they are necessities.

Perhaps the price of an expensive steak will go down while ground beef does not.  It’s hard to say how things will go.

But what about big purchases?  What will happen to prices, and does it make sense to wait?

I think it is going to depend on how much of a need it is versus how much of a want it is.  If it is a want (more of a luxury thing), then it is more likely to fall in price.

For example, if you are doing well and you really want to put in a swimming pool in your backyard, it actually makes sense to wait until we have a good hard recession.  It’s hard to say if the raw material prices will go down, but it is a decent bet that labor costs will go down and demand for pools will soften.

If you are going to need a new roof on your house or a new air conditioning unit, it is much harder to say.  In a deep recession, most people are still going to find a way to get a new air conditioner, especially if they live in a warm climate.  These are close to being necessities, and people can’t necessarily completely plan on replacing them until they need to be replaced.

Generally, if you know you will need a new roof or a new air conditioning unit soon, then you should shop around.  You may not be able to wait for a recession, and there is far from any guarantee that prices will go down.

The same goes for automobiles.  Prices may come down in a recession, but it is far from a guarantee.

Here are the two things I am convinced you should wait on buying until there is a hard recession – stocks and houses.

I believe stocks and residential real estate have been in a massive bubble.  As the Fed raises its target rate and slowly deflates its balance sheet, these bubbles are going to deflate along with it.  If you are currently renting and want to buy a house, I think it is a good bet to wait.

And as stated above, it will generally make sense to wait on purchasing more luxury items.  If you want to remodel your kitchen, why are you going to do it during a mania when there is high demand?  If we are in the midst of a hard recession and you are still doing financially well, then this is the time to do it.  Businesses that remodel kitchens will probably be offering discounts.

So if it is a necessity, you probably don’t want to wait.  But if you have time to shop around, then take your time to do so.

If it is a cosmetic item to make your house look nicer or be more enjoyable, and if it is a big purchase, then it is probably better to wait.  You can wait to make sure that you are still doing well in a recession, and you can wait for discounts when suppliers of these services are desperate for business.