The global economic downturn, which started in December 2007 in the United States, significantly influenced the housing market. However, the country has been through several recessions from 2007-2014. The worst is 2007-2009.
As a result, many individuals lost jobs. It resulted in the housing bubble burst. From the mid-1990s to the mid-2000s, house rates increased in 2007. According to reports, the price of a single house in the US was $314,000, which earlier was $207,000.
Why is it essential to discuss the great recession?
If you are a home-buyer and evaluating the price aligning with the economic prosperity and shape, know history.
What is the Great Recession 2007?
A great economic downturn from 2007-2009 happened after the housing bubble burst. It was the second most severe economic fall after Great Depression in the 1930s.
The combination of rising home prices, and non-guided lending practices, pushed up the rates of houses to an unexpected level. As a result, the housing bubble burst in 2007.
The effects of the 1929 stock market crash lasted for a decade. Many individuals lost their businesses, invested properties, and savings.
What Caused a Great recession in the US Housing Sector in 2008?
To lend flexibly, mortgage providers revised their policies to unbelievably affordable mortgage rates. Here, real estate caught the eye of the speculators.
These individuals begin to profit from buying and selling precious properties. Some investors purchased properties to reap the returns later. With more speculators joining the party, the economy came to a halt. A recession was inevitable.
Apart from this, the US government launched affordable housing for all and made home loans accessible to all, regardless of their credit scores. It implies a jobless individual could apply and qualify for rent loans for the unemployed without any trouble. These borrowers shared a high risk of defaulting on the loans. Higher accessibility to loans and secured borrowings like mortgages built the foundation for economic collapse.
These were subprime borrowers who had the freedom to apply and qualify for adjustable-rate mortgages. In this, a borrower can begin with a small amount initially. The amount increases with time. Average sub-prime mortgage rates in 1998-2001 were higher than conventional mortgage rates by 3.7%.
By 2008, the situation of the housing market and mortgages got worse. More and more individuals begin defaulting on these mortgages, leading to recession.
A housing recession can drastically impact a country.
Here are some other causes that lead to the economic downturn.
Affordable housing The purchase value of the property was high. Demand decreased. Despite decreasing the price of the property, the demand remained intact. Everyone was sceptical about buying that land and ensuring a good lifestyle.
With mortgage rates touching their lowest, the speculators borrow more amount to buy homes and sell them at high prices. What will you do in the case of affordable mortgages? Yes, buy more and more properties. This behaviour created a false sense of demand among the country’s people.
The US always prioritizes the “American Dream”. It is a general ethos of the United States according to everyone ensure a good lifestyle by working hard and becoming successful through good job opportunities. It ensures equal opportunities for everyone to compete and gain the desired status. Life should be better and more fulfilling for everyone. One should get what one deserves according to intellectual abilities.
When there is an economic recession, every industry faces fumes. It happened during the Great Recession. Consequently, the demand for housing decreased as people were more concerned about ensuring good employment opportunities.
What Happened to the U.S. Economy After the Great Recession?
As the crisis grew, it led to numerous foreclosures and defaults. It crashed the housing market drastically. The values of securities-backed mortgages began depreciating. The fallout created a ripple effect on the entire global financial system. Financial lending authorities or lending institutions collapsed.
The value of the homes dropped below the amount borrowed. The interest rates were spiked. In this case, foreclosure or declaring bankruptcy is generally considered an apt solution. The same thoughts consumed the minds of the countrymen. The borrowers were better off defaulting on the mortgage than paying high repayments for a home that depreciated drastically.
What Was The Real Estate Market’s Response To This Major Economic Shift?
The home building encountered a sharp decline. It restricted the construction of new homes in the US. Access to these homes was not open to the public. Lack of supply and increased demand led to the establishment seller’s market in the real estate industry. The people were chasing new homes. This constant search provoked a price increase.
How did Real Estate help the US ensure its grip over the shattered economy?
Later, to stimulate the economy in a mess, Federal Reserve slashed the fund’s rate to near zero. The federal fund rate is the interest rate at which banks borrow money.
Federal Reserves slashed interest rates post-economic downturn. It granted more access for the industrialists and other prime economic drivers to re-invest in the economy. The aim was to rebuild the economy from scratch.
The decision to lower the federal fund interest rates worked a great deal in stabilizing the US economy. The policymakers, after witnessing the worst, re-established lending laws. Along with prioritizing customers’ interests, it emphasized borrowers’ affordability. Thus, instead of making a mortgage affordable, the rule is to reveal the affordability to qualify for the loan.
Dated back to the existing scenario, The US’s financial setup is strong enough to avoid any downfall. Furthermore, well-researched and strict implementation of new lending parameters uplifted the shattered economy.
In the case of bad credit mortgage loans, there is no such thing as guaranteed approvals. If the borrower legally qualifies for the mortgage and meets the basic eligibility criteria presented, he gets the loan. The lenders evaluate another aspect beyond the secured asset valuation.
It includes income evaluation, personal assets, credit score, etc. A credit score is the primary and the most essential criterion to qualify for a mortgage in the US. It stands in contrast to the Great recession, where borrowers were vulnerable to borrowing. Credit score was not the base of lending.
What Are The Existing Real Estate Ownership Laws In The US?
The ownership of land has been a long dream for citizens and non-citizens. Real estate transactions are the single largest purchase and profitable way to build wealth. Here are some general laws that buyers must abide by:
- Any legal entity, like an individual, partnership, corporation, or LLP, shares the right to own any property.
- Non-citizens may also own one in the US.
- One must comply with the zoning legislation
- Must qualify the mortgage and have supporting documents
- Must fully understand the terms before signing off
- Sign a Deed of Trust. It grants lenders the flexibility to seize the property if the borrower defaults.
- A lender may agree on foreclosure. If this happens, a lender cannot interrupt the proceedings or call the borrower to pay. It continues until the house’s foreclosure sale. The foreclosure mark remains on a credit report for many years.
One must not invest in a property relying on future appreciation. The economic downturn, location mismanagement, or just plain luck can impact the prospects.
Should You Buy a House in the Recession?
The Great Recession of 2008 was devastating for the US economy. If buying a home in a recession as a savvy person can fetch you good deals. A recession impacts the housing market drastically. Many buyers do not involve in any property buying owing to an unstable economy.
The number of foreclosures and sellers has increased. It increases the number of homes out for sale. In this way, individuals can fetch home at lower rates. Recession promotes other issues like no job security, fewer chances of mortgage approval, high-interest rates, and difficulty in selling the existing home.
Thus, take an honest look at your finances, and weigh the pros and cons before buying a home in recession. Having a solid financial backup and future certainty can help you confirm your home at unexpected rates.
The Great Recession proved a nightmare in the history of the United States. History may not repeat itself, but ensuring good financial well-being is critical. Ensure strong financial backings to combat times like these.