During the depression foreclosure rates skyrocketed. what was the main cause?

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During the Great Depression, foreclosure rates skyrocketed, leaving many families without homes and exacerbating the economic crisis. This article aims to explore the main causes behind the surge in foreclosure rates during this period of economic turmoil.

Impact of Economic Downturn

Unemployment: One of the primary causes of the high foreclosure rates during the Great Depression was the widespread unemployment that affected millions of Americans. As people lost their jobs, they were unable to meet their mortgage payments, leading to an increase in foreclosures.

Income Reduction: The economic downturn resulted in a significant reduction in household incomes. Many individuals experienced pay cuts or had their working hours reduced, making it difficult for them to afford their mortgage payments. This financial strain contributed to the rising foreclosure rates.

Bank Failures and Tightened Credit

Bank Failures: The Great Depression saw numerous bank failures, which had a direct impact on foreclosure rates. When banks collapsed, they were unable to provide the necessary credit to homeowners, making it challenging for them to refinance their mortgages or obtain new loans. As a result, homeowners were left with limited options, leading to an increase in foreclosures.

Tightened Credit: Even for those who managed to retain their homes, obtaining credit became increasingly difficult during the Great Depression. Banks implemented stricter lending criteria and reduced the availability of credit, making it harder for homeowners to access funds to cover their mortgage payments. This lack of credit options further contributed to the surge in foreclosures.

Decrease in Property Values

Deflation: The Great Depression was characterized by a period of deflation, where the general price level of goods and services decreased. This deflationary environment had a significant impact on property values, which declined rapidly. As property values plummeted, many homeowners found themselves in a situation where their mortgage debt exceeded the value of their homes, making it difficult for them to sell or refinance their properties. This decline in property values played a crucial role in the increase in foreclosure rates.

Lack of Government Intervention

Minimal Safety Nets: During the Great Depression, the government’s intervention to address the economic crisis was limited compared to modern times. Safety nets such as unemployment benefits and mortgage assistance programs were virtually non-existent. This lack of government support left many struggling homeowners with few options, ultimately leading to higher foreclosure rates.


The main causes behind the skyrocketing foreclosure rates during the Great Depression can be attributed to the economic downturn, including high unemployment rates and reduced household incomes. Bank failures and tightened credit further exacerbated the situation, making it difficult for homeowners to access the necessary funds to meet their mortgage payments. The decrease in property values, coupled with the lack of government intervention and safety nets, created a perfect storm that resulted in a surge in foreclosures during this challenging period.


– Federal Reserve History: federalreservehistory.org
– The Balance: thebalance.com
– Investopedia: investopedia.com