Why Is Real Estate Still So Sluggish?
Of course the real estate market in the U.S. started to unravel toward the end of 2007 when the mortgage bond market went bust. Since then home prices have dropped substantially and interest rates are at levels that would have been unbelievable for decades. Despite that home sales are very low. How is this possible?
Qualifying for a home loan has become more difficult than it was prior to 2007 when lending standards were lowered to ridiculous levels. People could get a mortgage with no money down and without showing proof of employment or income. Greedy lenders and mortgage brokers and even greedier Wall St. bankers made this possible. Eventually the frauds came to light and the system exploded.
Until home prices stabilize and perhaps start increasing a little, potential buyers will keep holding off because they don't want to invest in something that is likely to go down further in value, despite how attractive the current price looks.
What is fueling this steady drop in home prices is the high number of foreclosed and vacant properties that have flooded the market. The flow of foreclosures did slow down a bit because banks were being lambasted for "robo-signing" and not complying with laws about how to treat people who are behind on payments. The numbers have increased again, however, and it looks like that will continue for some unknown amount of time yet.
An amazingly large percentage of the population is effectively stuck in their current homes and not eligible to buy a new one. About a quarter of all mortgages in the country are now under water since home prices have dropped so much. In order to get out of the house they currently live in, they would have to take a large loss in cash.
With an unemployment level at about nine per cent, certainly the housing sector is going to be affected. Making this figure worse are the millions who have given up on finding a job because they tried unsuccessfully for a long time and found nothing. Many more millions are underemployed. They are working, but they are in jobs that are low paying and beneath their actual qualifications.
These are some of the main reasons that there is seemingly an anchor holding down the real estate industry. There is no light visible at the end of the tunnel right now, and things are likely to remain as they are for the foreseeable future.
Qualifying for a home loan has become more difficult than it was prior to 2007 when lending standards were lowered to ridiculous levels. People could get a mortgage with no money down and without showing proof of employment or income. Greedy lenders and mortgage brokers and even greedier Wall St. bankers made this possible. Eventually the frauds came to light and the system exploded.
Until home prices stabilize and perhaps start increasing a little, potential buyers will keep holding off because they don't want to invest in something that is likely to go down further in value, despite how attractive the current price looks.
What is fueling this steady drop in home prices is the high number of foreclosed and vacant properties that have flooded the market. The flow of foreclosures did slow down a bit because banks were being lambasted for "robo-signing" and not complying with laws about how to treat people who are behind on payments. The numbers have increased again, however, and it looks like that will continue for some unknown amount of time yet.
An amazingly large percentage of the population is effectively stuck in their current homes and not eligible to buy a new one. About a quarter of all mortgages in the country are now under water since home prices have dropped so much. In order to get out of the house they currently live in, they would have to take a large loss in cash.
With an unemployment level at about nine per cent, certainly the housing sector is going to be affected. Making this figure worse are the millions who have given up on finding a job because they tried unsuccessfully for a long time and found nothing. Many more millions are underemployed. They are working, but they are in jobs that are low paying and beneath their actual qualifications.
These are some of the main reasons that there is seemingly an anchor holding down the real estate industry. There is no light visible at the end of the tunnel right now, and things are likely to remain as they are for the foreseeable future.
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