Are we in recession?

Bad Credit, debt, crisis, high prices, foreclosures are words we are starting to hear more often everyday

By now, you have heard many rumors about how jobs are disappearing, about how house prices are falling down and how paychecks are not covering all needs specially when food, gas and energy prices are going up everyday. You might be hearing as well how many people are in debt, being unable to pay for their previous loan, loosing their houses, their cars being repossessed and how this affects them by generating a very bad credit, which only worsens their financial situation. The words crisis, debt, foreclosures, bad credit, high prices, recession might sound now too familiar to you.

That is because something is clearly gone wrong with the economy and the worst is probably still ahead. Some experts think that job looses will probably keep accelerating, home prices might keep falling, household wealth will keep shrinking and more and more people will worsen their credit scores everyday.

The National Bureau of Economic research defines recession as “a significant decline in economic activity spread across the economy, lasting more than a few months” And how long has it been? Six? Eight months? Enough people are loosing their jobs, stores have stopped selling things, there is less money in people’s pockets, factories stopped making things, people are everyday in debt, millions of people have bad credit, then this is probably a recession although, officially, we are not.

Just to point out what is going on with the Real Estate, mortgages are hard to obtain, banks are not easily lending money, people are so into debt and bad credit that they can’t qualify for a loan and, even though construction is dropping down, there are still many more houses on the market than there are people to buy them and more homeowners are slipping into foreclosure.

Homeowners fell behind their loans and could not qualify for new ones while the bank confronted huge looses and never saw that coming. Of course there are other areas remaining like credit cards, auto loans, corporate and municipal debt.

Unemployment already has risen and the first signs of distress emerged in housing. Real Estate companies, construction companies, mortgage brokers and banks began laying people off. And jobs related to housing, like companies offering carpets, lighting, flooring, furniture, among others, followed. And this impact has reached other kinds of jobs inflicting cutbacks throughout the economy.

As many experts think, the fate of our economy now rests on the shoulders of the consumers. Their money is the one that circulates through the economy but people are starting to tighten their belts specially when a significant number is going through debt, bad credit and even filing for bankruptcy. People have no choice but to spend less, save more, reduce their debts, repair their bad credit and leave within their needs; at least until the economy rises again, if it is ever going to happen.