What caused the most recent recession? Back in early 2006, housing prices rapidly peaked in about half of the United States. Demand was high, but the number of homes for sale was in limited supply. Additionally, there was a large gap between house prices and wage growth. By the end of 2006 through 2007, housing prices began to decline, and foreclosure rates exploded throughout the United States as subprime mortgages fell into default. When the housing bubble burst, it had an extremely negative effect on the economy and the credit crisis it caused helped fuel our 2007-2009 recession.
Will 2018 Bring Another Housing Crisis?
According to economists, there are signs that we are once again heading towards another housing bubble collapse. Analysts are sounding the alarm that the bubble may burst in 2018 after seeing several good years of increasing housing prices, paired with slower wage growth. In Phoenix, housing has become less affordable compared to wage growth — conditions all too familiar to analysts of the 2007 crisis.
Regulatory Changes After the Subprime Mortgage Crisis
The collapse of a housing bubble is generally considered more dangerous to the economy than a stock market crash. The combination of real estate growth and wage stagnation leads to homeowners defaulting on their loans. As banks and lenders scramble to recover, interest rates rise – making homes even less affordable and decreasing demand. Housing prices drop accordingly.
Can the same crisis happen again? Regulatory changes, such as the Housing and Economic Recovery Act of 2008 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, sought to rein in irresponsible financial risk-taking and predatory lending, among other provisions. Overall, these regulations have proven beneficial to economic stability and consumer protection. There is certainly still room for improvement.
You might find yourself on the losing end of a mortgage that is no longer affordable and at risk of losing your home. Filing for bankruptcy may be a way to stop a foreclosure by allowing you to restructure your debt and get caught up.
Disclaimer
This blog is intended as a general discussion of legal issues and not as a statement of fact, legal advice or a legal opinion. No attorney-client relationship is created by this blog. Do not act or rely upon law-related information in this communication without seeking the advice of an attorney licensed to practice in the relevant area.