The Great Recession was an 18-month period of global economic contraction. Though its official start date is generally considered to be December 2007, the conditions leading to the recession began several years earlier. It started with the American housing market. Interest rates were low in the early 2000s, which meant loans secured then would cost very little to pay back. This spurred a lot of people to take out loans for purchasing houses and investment properties. Many banks relaxed their lending rules to take advantage of the lending frenzy. It is estimated that 56 percent of people who secured loans between 2000 and 2006 would not have been able to do so if traditional lending requirements had been enforced.
As the demand for property increased, so did its cost. As a result, property purchases slowed and interest rates went up. People who had adjustable mortgage rates—interest rates that moved up or down with the market—now had to pay higher monthly mortgages. This left less money to pay for other things, like utilities, groceries, and transportation, which was also becoming more expensive as oil prices increased.
Less consumer money flowing into the economy hurt businesses of all sizes. Overall, employers in the United States laid off over eight million workers in 2008 and 2009, which contracted the economy even further. In turn, this hurt businesses abroad that depended on the purchasing power of American citizens or were tied to the American banking system.
U.S. banks suffered during the recession, losing money on mortgage loans that would never be repaid. In 2009 alone, 176 banks failed because they no longer had adequate funds to meet the needs of their clients. Banks that managed to stay financially stable tightened their lending procedures, which limited the ability of businesses and individuals to get loans. Businesses were unable grow, buy new inventory, or borrow money to cover employee paychecks. Similarly, consumers were unable to get loans, which meant companies that relied on consumer loans, such as auto manufacturers, could not sell their products.
The Bush administration's 2008 Economic Stimulus Act failed to prevent the recession. Later government bailouts for financial institutions and major manufacturing companies helped prevent the recession from turning into a depression. Though its "official" end date is cited as June 2009, its effects rippled on. The unemployment rate peaked at 10 percent in October 2009, the highest it had been since 1983. Between 2008 and 2010, over 200,000 small businesses closed. During the recession and in its aftermath, 10 million families unable to afford mortgage payments lost their homes in bank foreclosures.Recovery from the Great Recession was slow. Bank lending policies remained cautious nearly a decade after its end. Individuals with a record of foreclosure still had difficulty securing loans despite improved financial stability. Some sectors of employment had not yet recovered. Manufacturing companies, for example, employed 1.5 million (11 percent) fewer people in 2018 than they did prior to 2007.
U.S. Unemployment Rate, 1948-2018
Many people who had purchased houses in the five years preceding the Great Recession found themselves suddenly unable to afford their mortgage payments when interest rates rose in 2006. In many cases the value of the house had dipped below what the buyer originally paid for it, meaning the purchaser owed more money to the bank than the house was worth. Even if they sold their home, they would be unable to fully repay their loan.
As a result millions of people stayed where they were and paid what they could—which was sometimes nothing at all. After months of partial payments or nonpayment, banks would legally repossess the home in a practice called foreclosure. The homeowner/borrower lost all rights to the property, which was taken over by the bank. The bank then sold the property to recover some of its losses. Unlike selling a home, there was no chance of the homeowner making a profit when the bank foreclosed. That meant the homeowner lost everything, including any original down payment, as well as the money paid on the principal, which is the base value or price tag on the house excluding interest.
Around 10 million families lost their homes to foreclosure during the Great Recession and its aftermath. More restrictive lending procedures meant most could not buy new homes. They tried to rent. However, rental properties were in high demand, which inflated the monthly fees. Many families who couldn't afford high rents ended up homeless.
New Face of Homelessness
The picture of homelessness in the United States has usually been single men, often minorities, with substance abuse problems and/or mental health issues. But the housing crisis combined with high unemployment rates forced approximately 500,000 families onto the streets and into shelters. Nationwide, the number of homeless families rose by nearly 30 percent between 2007 and 2009. Homelessness is generally an urban problem. In 2009, 20 percent of all homeless Americans lived in Los Angeles, New York City, or Detroit, Michigan. However, during the Great Recession, the number of rural and suburban homeless families increased by 56 percent. It wasn't just the poor who were homeless—middle-class people who once earned a comfortable living were affected, too.
The homeless crisis in America, which first emerged in the 1980s, hit a peak in the Great Recession and began a slow decline in the following decade. However, homelessness numbers ticked back up in 2017 as banks remained cautious about home and business loans and rents remained high, especially in urban areas. In addition, while the economy grew, wages did not increase at the same pace as inflation. The Great Recession was over, but its effects could still be felt by millions.