3 Ways the Next Recession Will Be Different

Different Cities Could Be Impacted

The parts of the country that had it worst during the first recession – housing bubble states like Florida, California and Nevada – won’t be helped any by a second recession, but neither will they be the hardest hit. Instead, Dales speculates that it may be cities like Washington, D.C., that are in for an unpleasant surprise.

“One of the differences in this next recession is that there would be less fiscal stimulus,” Dales said, predicting that legislators would be less likely to expand government payrolls or pump billions into the economy given the anti-spending climate right now. “So more jobs might be lost in Washington, D.C., which escaped quite lightly during the first recession.”

Faucher speculates other cities like New York and Boston may endure tougher times if the stock market were hit hard by the next recession, since these cities are very much exposed to the financial markets.  What’s more, he argues that the technology industry might experience some turbulence as well, more so than during the previous recession, as investors would have to think twice about funding projects. If so, San Francisco and Seattle could have a gloomy outlook.

A Better Housing Market

While no one can say for sure which factor might cast the final blow the economy, one thing seems clear: it won’t be the housing market.

“This will not be a housing-led recession like the last one,” Faucher said, and as a result, consumers shouldn’t expect to see a drastic fallout in the housing market this time around. “The housing market may bounce along the bottom a little longer and see small price declines, but we are pretty close to an equilibrium.”

Housing starts are at record low levels and prices have dropped significantly, meaning the market doesn’t have much farther to fall. Once again though, that’s not to say the housing market would be unaffected by another recession. According to Dales, the big concern is that a new economic downturn could prompt another round of first-time mortgage defaulters, which in turn would lead to another round of foreclosures.

“It might even be the case that people who are struggling to pay their mortgages now would see another recession as reason enough to stop paying, that they might say they have had enough,” Dales said.

Sadly, since foreclosures could take years to process, it could serve as a long reminder of the devastating impact of a recession, even one that is short-lived.

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