The Economic Effect
It is no secret that the state of the economy has a profound effect upon housing sales and mortgage availability. The entire world has experienced some very difficult economic times recently and the backlash of easy mortgage loans and an enabling society is glaring. While the economy of the US seems to be picking up, according to the Wall Street Journal, new data on housing and household income validate the concerns that the economy could easily slow again as the government stimulus packages fade away.
The First Hit Is Real Estate
When the economy is tight, everything is impacted. Perhaps the place it is noticed the most is in the real estate market. In the US, housing sales were boosted by a tax credit of up to $8,000 for first-time house buyers, and since that deal has recently expired, unsold property is backed up. What this spells is a hot market for buyers with money who can qualify for mortgage loans. Properties are going like hotcakes in some areas of the US as people who were given mortgages without qualifications have been forced to sell. These forced sales mean property is released at a much lower price than other properties. Indeed, a buyer's market.
Foreclosure Rates Increased
One of the fallout effects of the wide expansion of mortgage credit that took place within the past decade, along with the fall in real estate prices in recent months, is the highest rate of foreclosures in the US since 2006. When a house is foreclosed upon, then a financial institution maintains and protects the property until such time as it can be sold. Houses that have been foreclosed usually sell well below market value because they are usually physically damaged during the foreclosure process and the financial institutions that have taken them on are highly motivated to sell them and get out of the deal. Urgent sales lower prices.
How Foreclosures Affect Neighborhoods
The effect of foreclosures spreads beyond the property that has been foreclosed upon. Houses in the vicinity are affected either directly or by the creation of an imbalance of supply and demand in the housing market. The net effect can be a spillover that causes prices to fall and stimulates other foreclosures as homeowners default on their mortgages because the mortgage exceeds the value of the house.
The mortgage industry, as a result of the above, is now making it more difficult to obtain a mortgage, requiring more money down and more stringent terms. While that is good for guaranteeing repayment, it makes it very difficult for first-time buyers to get into the market. At this point, it could be considered a catch-22. However, we all know there are ways to maneuver in the marketplace.
A Different Market Across The Ocean
In contrast to what is happening in the American marketplace, in England, housing prices continue to soar in spite of an economy that is less than stellar. At the end of the 20th century, a first-time buyer had to come up with a down payment of about 16 percent of the annual income. A decade later, that percentage rose to 64 percent. Young people are virtually pushed out of the housing market when prices reach such levels. The average age of a first-time house buyer in the UK is 38 years of age. People younger than the mid-30s don't have a hope of buying a house, unless they have a huge income.
Depending upon which economist you read, the world economy can be anywhere from dismal to hopeful. One thing is for sure, in the current economy, if you have some money saved and a good credit rating, you can probably secure a dandy piece of property for a lot less money than you would have had to pay five years ago.
