Every economic slowdown has its own personality. In 2001 a strong housing market kept other sectors afloat. This time around, real estate is the bugaboo, with housing starts down 46% from the beginning of 2006. And the clampdown on subprime mortgages appears to be rippling. In an October Federal Reserve Board survey, about 40% of bank loan officers said they had tightened lending standards on prime mortgages, compared with 15% in July. First-time buyers who do qualify can take advantage of the malaise. "I just might bite the bullet and buy a house on the cheap in 2008," says Rocky Loessin, 30, a bartender in Columbus, Ohio.
But for people who already have mortgage payments—especially those with adjustable rates—a recession is risky. That's why Elizabeth Warren, a Harvard professor and co-author of All Your Worth: The Ultimate Lifetime Money Plan, recommends doing whatever it takes to keep current and quickly refinancing into a more traditional loan if need be: "You may not have the option to do it later."
—With reporting by Adam Pitluk/Phoenix