There are growing concerns that the effects of the current economic downturn will have a long-lasting effect on the housing market.
One recent study concluded that the current financial crisis and recession have exceeded the devastation created by other
post-World War II recessions. What does that mean to you and me?
First, it means that we'll probably wise up and start saving more of the money we earn. Many of us will continue to cut spending sharply, some out of necessity and others out of fear of what the future holds. Second, when it comes to housing, we'll continue to see an increase in loan delinquencies, foreclosures and bankruptcies in the foreseeable future. And third, home prices will likely stay low, and in some areas still decrease some more. Unemployment will remain high for an extended period and banks will be less willing (and able) to provide credit, due to the increase in problem loans.
Who's going to feel the impact of this the most? Young first-time would-be buyers ("twenty-somethings") and 'active-adult' purchasers ("fifty-somethings") who want to downsize as their children grow up and move out. Unemployment for young people could have a lasting effect on both their lifetime earnings and their attitudes toward risk and social policies. Another major factor is that those nearing retirement are delaying it and re-entering the labor force in an effort to rebuild some of the retirement wealth that was wiped out by the recession.
The housing industry had been banking on all these groups to sustain growth during the coming decades - especially the empty-nester baby boomers. These tougher economic circumstances will weigh on housing demand over the coming decade, with the greatest direct impact on those two market segments, the "twenty-somethings" who won't be able to buy a home and the "fifty-somethings", who might have to wait to downsize from their primary residence and who will also be less likely to buy a second-home.
Granted, that's a fairly dismal outlook, but even those who do not share it still do not hold rosy projections, because today's housing market is clearly imposing more discipline by requiring bigger down payments and better credit scores for buying homes.
Many are predicting that our national homeownership rate will drop from its current 69% back down to pre-1995 levels of about 64%. And there's lots of discussion right now about whether that might not be a good thing, overall, for both the economy and the society. The mortgage industry is already requiring that you prove you can afford to buy the home you want and repay the loan you're requesting. Pretty revolutionary, eh?? And the financial-overhaul package now making its way through Congress will increase the pressure on lenders to be even more demanding.
Bottom line: For a long time, it's going to be harder to get a loan to buy a home.
First, it means that we'll probably wise up and start saving more of the money we earn. Many of us will continue to cut spending sharply, some out of necessity and others out of fear of what the future holds. Second, when it comes to housing, we'll continue to see an increase in loan delinquencies, foreclosures and bankruptcies in the foreseeable future. And third, home prices will likely stay low, and in some areas still decrease some more. Unemployment will remain high for an extended period and banks will be less willing (and able) to provide credit, due to the increase in problem loans.
Who's going to feel the impact of this the most? Young first-time would-be buyers ("twenty-somethings") and 'active-adult' purchasers ("fifty-somethings") who want to downsize as their children grow up and move out. Unemployment for young people could have a lasting effect on both their lifetime earnings and their attitudes toward risk and social policies. Another major factor is that those nearing retirement are delaying it and re-entering the labor force in an effort to rebuild some of the retirement wealth that was wiped out by the recession.
The housing industry had been banking on all these groups to sustain growth during the coming decades - especially the empty-nester baby boomers. These tougher economic circumstances will weigh on housing demand over the coming decade, with the greatest direct impact on those two market segments, the "twenty-somethings" who won't be able to buy a home and the "fifty-somethings", who might have to wait to downsize from their primary residence and who will also be less likely to buy a second-home.
Granted, that's a fairly dismal outlook, but even those who do not share it still do not hold rosy projections, because today's housing market is clearly imposing more discipline by requiring bigger down payments and better credit scores for buying homes.
Many are predicting that our national homeownership rate will drop from its current 69% back down to pre-1995 levels of about 64%. And there's lots of discussion right now about whether that might not be a good thing, overall, for both the economy and the society. The mortgage industry is already requiring that you prove you can afford to buy the home you want and repay the loan you're requesting. Pretty revolutionary, eh?? And the financial-overhaul package now making its way through Congress will increase the pressure on lenders to be even more demanding.
Bottom line: For a long time, it's going to be harder to get a loan to buy a home.
Tough times in store for the housing market