Why a recession is coming, not a foreclosure crisis

A couple with two children on the front steps of their house.

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Things can get worse, but it doesn’t mean you’ll lose your home.

Key Point

  • We could soon reach a point where unemployment starts to rise.
  • Foreclosure activity is unlikely to increase any time soon, even if economic conditions worsen.

Recently, many financial experts have sounded the alarm about the possibility of a recession. That’s because higher interest rates can lead to lower consumer spending, which can decline rapidly.

Especially if you remember the Great Recession of 2007-2009. At the time, not only was unemployment rampant, but the housing market crashed and home prices plummeted. Many people have been forced to lose their homes in the process.

However, if a recession occurs in the short term, it may not last as long as the Great Recession, and it is far from likely to lead to a housing or foreclosure crisis.

very different situation

Many homeowners had mortgages when the Great Recession was in full swing. In other words, they borrowed more money than they could actually sell the property.

A big reason for that scenario is that buyers can now buy homes with very little down payment. Also, mortgage lenders were less strict about what people borrowed. So many homeowners got properties they couldn’t afford, and when they fell victim to layoffs, they soon fell behind on their housing payments and banks were forced to foreclose.

Things are very different these days. For one thing, mortgage lenders are very strict when it comes to approving prospective borrowers. Second, with home prices now rising at the national level, many homeowners are not in arrears on their mortgages, even with low or no down payments (VA loans Some loan programs, such as ). As such, these homeowners are unlikely to be repossessed.

Demand from homebuyers is currently strong. So when a recession hits and layoffs occur, people who couldn’t keep up with their mortgage payments are most likely to have the option of listing their homes, finding a buyer, and leaving clean. A foreclosure is a good thing because it can hurt your credit score.

Additionally, foreclosures are not good for lenders. Banks are not in the business of selling houses. Their goal is to make money by collecting mortgage interest. So the fact that we’re most likely not seeing a wave of foreclosures is positive overall.

How to prepare for a recession

Whether you own a home or not, it’s a good idea to bolster your finances in case the recession hits and your job crumbles. First, if he doesn’t have enough money in his savings account to pay for three months’ living expenses, increase his emergency fund. Then, make sure you pay off the big debts so that you won’t be burdened with paying them when your income may dwindle or disappear.

We can’t say for certain that a recession is coming, but many financial experts say it’s inevitable. This does not mean that the Great Recession will be repeated. Nor does it mean that foreclosure is imminent. But that means now is a good time to prepare.

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