Real Estate

Who is to blame for the current situation in the housing market?

The burning question of recent times is who should be blamed for the current situation in the housing market. Is it the banks, the mortgage industry, or the people? Well, the answer is not so simple when we try to look at it from different perspectives. For someone who has worked in the mortgage industry, the current situation is similar to that of the early phase of the great recession of 2008. Unfortunately, the recent signs are indicating that we are about to hit another recession in the coming years.

But how does this affect the housing community and is the mortgage industry to blame? Well, when you look at the events two years before the great recession, you can find that house prices hit a terrible fall. Before that, the people who worked in property press saw an unusual growth in the housing community and the prices of the buildings soar to rocket-high. Unfortunately, in 2007, the bubble burst for the people, and Congress had to bail out banks by providing $700 million.

So, is this situation similar to that of 2008? Well, upon scrutiny, we cannot say that the situation is that dire. But yes, the prices of houses and properties are seemingly falling in many parts of the country. Let us see the experts’ take on the recent recession.

Economists believe that recession is around

While many industry experts believe that they have averted the situation, economists around the globe feel otherwise. Industry experts and many financial institutions believed that the recession was about to hit in 2020 and it did. But the risk is still pondered in the housing industry. 

Apart from the housing industry, other industries also happened to share the burden of this recession. Many companies had to shut down and some opted for workforce reduction. The pandemic in 2020 added more pressure to the 2020 situation. However, the recession isn’t gone yet. And we think that this situation will stay in the globe for quite some time. 

Mortgage industry during recessions

Now, let us come back to the original question of whom to blame for the housing market in this current situation. Before we begin, let us know how the mortgage industry is affected during the recession. 

It is not to say that recession affects the financial systems of the country very heavily. The higher levels of unemployment and increasing financial rates lead to lesser purchases, lending, and eventually, spending. Now, this affects the mortgages negatively. The existing mortgages with a fixed rate and fixed-term loans may not be affected much. But the adjustable-rate mortgages see a rise in payments. Also, there are no new mortgages, thereby affecting the mortgage industry as a whole. 

So, as a whole, the mortgage industry is negatively affected by the recession. People don’t tend to take loans or even default on payments. Some people may also declare bankruptcy due to loss of work. This leads to personal insolvency that rescues any individual to pay any liable amount. The mortgage industry is highly unstable during the recession period and therefore, many institutions merge with big institutions or declare insolvency. But how is the mortgage industry responsible now for the current housing prices?

Are mortgage institutions responsible for the soaring prices in the housing market?

While this is a debatable question, many believe that the soaring rates on housing and property loans lead to a plummeting situation. As per a report from the property press, homebuyers are not interested in investing in new homes during this time when the dollar hits its all-time high and the rates are skyrocketing. Earlier, the brokers were charging around 3.1% on the 30-year fixed loans. But now, they are straight away quoting 5%. As a result of this spike, many borrowers have taken a step back till the situation is better. 

But why are these institutions marking a 2% hike on mortgage loans? Well, the answer is quite complex if you look from different perspectives. The answer is both recession and demand-supply trade-off. While a recession count is hanging over the institutions, there is a shortage of supply as well. The contractors are also taking the recession into account and not staging their investments in creating more houses.

The irregularity in the supply and increasing demand have changed the face of the housing game. Due to this disparity, it has now become the seller’s market in the economy. However, there is a sign of relief as the Fed governor believes that this situation will hover down in the coming year or so when the ambiguity of recession is laid down.

So, is the mortgage industry to blame for the current housing market condition? To some extent, yes, but there are other factors as well that we need to count upon. For instance, recession and the demand-supply disparity have affected the market making it a seller’s market. The constant fear of unemployment and price surge holds the borrowers to invest more money into property. The 2% hike in the mortgage loan rates is also conditioning many investors to propel backward in the current situation.