The past economic crisis, if it is indeed passed, will change a lot in the world of business and finance. The housing market is the most severely affected financial sector.
These past couple of years have been a roller coaster ride when it comes to business and finance. The thing about these economically troubled and recessionary times is that the crisis has really hit home – literally.Housing Market Cause and EffectThe housing market in the United States, and the big banks and institutions upon which that market was built, was the chief catalyst for the all the economic turmoil. Turmoil that gained global significance.
Access to Mortgages LimitedOne solid outcome of this time is that mortgages will become less accessible to those on limited incomes – housing purchases will fall. Lenders and quasi-governmental institutions, such as Fannie Mae, have severely tightened rules governing who can qualify for a mortgage.
U.S. Government Holds SwaySince the so-called Great Recession, the feds have been pumping trillions of dollars into housing financial markets by buying up securities made of bundled mortgages. These purchases have resulted in painfully low housing interest rates.
Feds Buying Securities to StopThe Federal Reserve has indicated that it will soon curtail this spending. Eventually it will stop buying these securities altogether. Of course, these securities will revert to purchasing done on the private economy by private investors. And investors like to see significant returns on their deposits.
Pumping the RecoveryOver the last few years, government policies designed to stimulate the economy – printing tons of unsecured sawbucks among them – has left the the U.S. Government with an outrageously colossal debt, which in and of itself could despoil the recovery. U.S. bonds are not attracting investors as they once did. This is having the effect of raising interest rates, and that too will have a great effect on the housing industry.
Hopefully Watching and WaitingAnalysts hope that the rising interest rates will not outstrip the recovery and 6% is the forecast. But, the thing is, even a modest increase can cause all sorts of turmoil. Homeowners who purchased their homes under variable rate mortgages before the crash when housing prices were quite high, will still be faced with the prospect of catastrophic payments due every month.
Everything now depends on the nuances of the improvement in the economy in general, and whether or not the recovery is a reality or a dream.
Fixed Rate Mortgages NecessaryBuying a home in these strange times causes many to draw back because they do not want to get caught with suddenly high monthly payments considering the volatility of the financial markets, especially those aspects that determine interest rates. Home buyers are looking to fixed-rate mortgages. While these are more expensive than variable rate mortgages, at least payments are locked and thus prevent irreparable harm to family budgets. This would hold true especially for buyers considering rather expensive homes where the slightest upward rise could mean catastrophe.
What the Future HoldsWhatever the credit status of a potential home buyer, and no matter the income range, it is necessary to realize that housing costs will continue to climb significantly over the long run. Higher monthly costs will be the norm. Thus, it is necessary for prospective buyers to allow themselves plenty of wiggle room when it comes to including housing the budget. Or better yet, get a more expensive but more stable fixed rate mortgage.