Could We See Another
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If you’re asking, “Could we see another housing crunch?” you aren’t alone. Buyers want to take advantage of low mortgage rates today. Home prices rise as housing supplies in some parts of the country decrease.
There are many differences in today’s housing market and the housing bubble that burst about ten years ago.
Global Recession and Housing Market Collapse
In 2007, the perfect financial storm of a declining economy, unemployment increases, and easy mortgage money paved the way for a housing market maelstrom. Lenders’ lenient practices, low down payments, and light documentation regarding income tempted some buyers into the market.
Adjustable rate mortgages (ARMs) were complicated and some buyers weren’t financially prepared and able to make higher future mortgage payments. Lenders didn’t care as much about borrowers’ credit scores and income stability as they do today. In fact, the industry was rife with less-than-scrupulous lenders who wouldn’t tell less-solvent borrowers that they might not be able to sustain their lifestyle, according to a Boise real estate professional. When homeowners defaulted on mortgage payments—and declining home prices made resale or refinance became impossible for many homeowners—the housing market crashed in the wake of the Global Recession of 2008.
Housing Market Rebound
Home prices are still increasing at a rate that’s approximately twice that of current inflation (U.S. National Home Price Index). The real estate market has rebounded since the Global Recession ended. Some financial experts believe the recession ended between 2010 and 2012.
In the aftermath of the previous housing crisis, major lenders Fannie Mae (FNMA) and Freddie Mac rolled out programs that help qualified buyers purchase a home with a low down payment. Other lenders use alternate credit profiles and scores to help some buyers qualify for a mortgage loan.
The reason that some lenders want to help non-conventional home buyers get a mortgage today is that it’s much more difficult to get a home loan today than it was in the past. The financial industry in general and mortgage lenders in particular want buyers with a sustainable income and good credit track record. Policies and programs are in the works to loosen restrictions on credit, which is horrifying because these were the conditions that created the problem in the first place.
It has become politically incorrect to imply that poor people cannot afford some things, but society isn’t doing them any favors by concealing that mathematical reality. For the housing market to remain stable and the financial sector viable, lending practices need to reflect borrowers’ economic reality. If we hope to extend homeownership to low income earners, we need to focus on helping them rise out of poverty first.
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