Before we can talk about the good news of a recession, lets define exactly what a recession is: 

 ”In macroeconomics, a recession is generally associated with a decline in a country’s real gross domestic product (GDP), or negative real economic growth.  According to widespread definition, a recession occurs when real growth is negative for two or more successive quarters of a year.” - Wikipedia

The biggest problem with current economy is that there great debate on whether we are in a recession or when it might of started.  So lets forget about the guessing game of a recession and take a look at few facts.

Since the 1940’s there have been 11 recessions.  On average the have lasted 10 months.  The good news on past recessions is not only are they short lived but the economy is generally already recovering by the time we declare that we are officially in a recession.

More good news on recessions. According to a 2007 report from The Wall Street Journal the stock market has actually rose seven times.  Further more, of the last 11 recessions the market has seen returns at a 3% average.   

So if we are in a recession now, what can investors take advantage of?

Interest Rates: Individuals that have equity in there property, this is a great time to do home equity lines of credit (HELOC).  Heloc’s are tied to prime and that is currently at 5.00%.  While most individuals just rolled their eyes and thought about how Chase, Wells Fargo and many other national lenders only go to 65-80% of the value of their property.  There are still a number of Portfolio lenders out there that still go to 95-100% of the value of your property.  See my other article about “How to Find a Portfolio Lender” if you are curious.

Awareness:  While a recession does not effect everyone in a the US, it certainly can create awareness.  This awareness can lead to individuals paying closer attention to their personal finances.  By this I mean, purchasing things one can not afford, paying down unsecured debt and actually saving money. 

Rebound:  Historically the economic cycle has never failed.  It cycles both up and down, and there have been winner and losers in each cycle.  From a real estate prospective we can all predict that the market will return to normal.  Investor and home owners can argue about what normal is, but when appreciation returns to your market, that is a least a starting point.  The good news that every market has begun to see this return of appreciation.  Across the board you can find major resets in housing prices, mostly facilitated through foreclosures and short sales.   While these foreclosures and short sales are a travesty to the individuals going through them, it is an opportunity for others.   92% of the US are not apart of the foreclosures, this along with a new affordable price point will bring back the first time home buyers and appreciation.

While there is nothing any one person a can do to change a recession there is plenty one can do to prepare for one.  Some will reduce their expenses, some will save money and others will find new affordable homes.  But we should all raise our awareness and plan for the future, do not be scared there is always good news to find.  

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

The Good News of Recession

Here are some mighty strong words: “The subprime lending debacle has caused the greatest loss of wealth to people of color in modern U.S. history.” That is the conclusion of the lead author of a new report by United for a Fair Economy, Amaad Rivera, as quoted in an excellent article in the Christian Science Monitor.

The report, says the paper, also concludes that “Black/African-American borrowers will lose between $71 billion and $92 billion in the current foreclosure crisis…” Add another loss for Latino borrowers of another $75 billion to $98 billion, says the paper.

Why?

The paper reports that a little more than half of African-Americans and 4 in 10 Hispanics back in 2006 got subprime mortgage loans. And, as we all know, defaults on subprime loans were the spark that ignited this entire economic mess that now is taking down the banking system along with the real estate one.

When viewed in this light, it is apparent who is getting hit the hardest–as a group–by this awful downturn.

Says the paper, “There’s broad support on Capitol Hill for shoring up government-sponsored home-mortgage giants Fannie Mae and Freddie Mac: They’re too big to fail, many say. But there’s much less consensus over what to do about people who are losing their homes,especially in poor, inner-city neighborhoods–or even over how to understand their plight.”

I interviewed earlier today an African-American woman who is an example of this very issue: She holds down one full time and two part time jobs, works seven days a week, is a widow, is supporting a live-in 17 year old niece, and, this week, will probably lose the home she long lived in with her husband in a “mixed” neighborhood, as she puts it, of Southern California.

To listen to her story, is to listen to all the stories out there of those suffering the worst housing downturn since the Great Depression: The value of her home dropped by nearly $100 thousand over a year and a half period, she says. She had to refinance several times to pay the bills. She tried in vain to get help from her lender. She started falling behind on her monthly mortgage payments. She has lost this battle!

Of course there are many white Americans who are in the very same place as this woman–also in dire need of a helping hand from the government…from somebody!

But she represents more…she represents a tidal wave of economic destruction that is tearing about entire neighborhoods in this country. Places where people who may have started on a lower rung of the ladder bought into the American dream only to get ripped off by greedy lenders who cared less about reinforcing the matrix of a community than about selling the loan to some other agency, some foreign bank perhaps, in the form of a repackaged security.

When the woman in question tried to extract an ounce of empathy from her lender — a lender now, itself, under government scrutiny for its home loan practices, she was told it no longer owned her mortgage…months later, she still hasn’t been able to find out exactly who does!

And so, this week, she will put pen to paper and leave behind for good a place she once came home to every night to eat dinner with her husband; a place she once watched her now fully grown son mature; a place she once took pride in; a place she once thought she’d live in till the day she retires; a place that, within days, will no longer belong to her.

She will visit it from time to time now that she has moved into a nearby rental unit. She will pass by it in her car but not turn into its driveway. She will keep on going because the American dream has now passed her by. Some dreams just don’t happen twice.

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This Post is from the BiggerPockets Real Estate Blog. Copyright © 2008 BiggerPockets, Inc. All Rights Reserved.

The Neediest Get Hurt The Most In Mortgage Crisis