The good news: retail sales, industrial production and employment – all up. The U.S. economy doesn’t seem to be on the verge of a slowdown. Unfortunately, before each economic downturn, these three markers historically index higher, even breaking records just before falling. This is why forecasters are generally blindsided by recessions, because they tend to be preceded by economic strength.
Adding insult to injury
Another indicator that tends to peak before an economic turn is the ratio between household wealth and income. The Federal Reserve publishes the status of this ratio quarterly and the last release shows it to be at a record level – just like it was before the last two recessions.
Does this mean we are headed for a recession?
Gross Domestic Product (GDP) growth is healthy, sitting at around $20 trillion. The unemployment rate is down, and the labor force participation rate is climbing. We’re in the second longest economic expansion. And with that, The Wall Street Journal, The Financial Times, The New York Times, and Bloomberg are all publishing daily articles warning of the risk of recession.
And just what would that look like?
An economic downturn the likes of the Great Depression of 1929 would mean drastic changes for all Americans. One out of every four would lose their job, the unemployment rate would be five times what it is now, and GDP would drop from a current $20 trillion level to near $14 trillion. Neighbors, parents and even you would be at risk of losing homes.
Recessions and the housing market
In regards to the housing market, even worse than the Great Depression was the financial crisis of 2008 when prices fell 31.8 percent compared to 24 percent during the Depression. In the early stages of the housing collapse recovery, foreclosures made up 30 percent of all home sales. Many homeowners were upside down in their mortgages, owing more than the home was worth. It is estimated that 9.3 million homeowners lost their homes or went through foreclosure.
Recession or not, keep that home
Whether or not there is a recession on the horizon, failing to make mortgage payments for whatever reason could lead to foreclosure on your home. When this happens, if your property is worth less than the total amount owed, a deficiency judgment could be pursued. In that case, not only do you lose your home, you also would owe your lender an additional amount. Both foreclosures and deficiency judgments could have a serious impact on your ability to qualify for credit in the future.
There are a few ways to avoid foreclosure, starting with awareness and accountability.
- Don’t ignore what is happening if you find yourself getting behind. The further behind you get, the harder it is to reinstate your loan and the more likely you’ll lose your home.
- Get in touch with your lender right away. They don’t want your house and they have options to help you through financial difficulties.
- Know your rights. Read your loan documents carefully so you know what your lender might do if your payments stop coming in to them. Learn about foreclosure laws and timeframes. Read up on loss mitigation options.
- Open and respond to all correspondence from your lender. They will offer solid information on foreclosure prevention options. As the process continues, mail from them may include important notices and information on pending legal action. Failure to respond will only hurt you in the long run.
- Prioritize your spending. Healthcare first, mortgage second. See where you can cut your spending or increase your income in order to make your house payment. Eliminating unnecessary spending, second jobs, selling assets, all demonstrate to your lender you are making sacrifices to keep your home.
- Contact a qualified real estate attorney to help you avoid or navigate the foreclosure process.
Even though the economy is going strong, many economists predict all good things must come to an end. Consensus is that in the next 12-18 months these good times will recede and America is likely to slip into another recession. If that happens, many will be facing the risk of losing their homes. Recession or strong economy, if you find yourself financially challenged and at risk of defaulting on your mortgage loan, there are some ways you may be able to avoid foreclosure. It comes down to being attentive to the situation, wise about your options, and moving swiftly in the direction of recovery. And the best advice? Don’t attempt to go it alone.
I offer a free, face-to-face consultation at my Cherry Hill, NJ office. I will provide honest answers to your questions and let you know what I can do to help you gain or regain control of your financial situation. In both the bankruptcy and real estate areas of my practice, I focus on helping my clients get through a challenging time. You can reach me by phone at 856-488-1200 or you can also contact me via form or e-mail.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.