The Real Estate Encyclopedia
What Caused The Slump In The Housing Market In 2007?
Category - Real Estate Information Sources - General Real Estate Information

Although the general assumption is that the housing and mortgage market was affected by the rise in the interest rates in 2007, combined with the large number of adjustable rate mortgages and the sudden inability of the borrower to continue making his mortgage payments, the fact is that the major impact on the market came from fraudulent lending practices.  Presently, most lenders depend on mortgage brokers to supply them with and originate the mortgage loans.  The mortgage firms hire loan officers who directly interact with the borrower and assist them in completing the forms and other tasks related to the mortgage process.


Although most mortgage brokers are hard working, honest people, misrepresentation and fraudulent practices by certain loan officers led to the present mortgage crisis because lenders find themselves forced to buy back bad loans and thus lenders have been forced to cut the supply of funds.  At this time, lenders have returned to the practice of requiring a 10 to 20% down payment and positive credit ratings from the borrower.


Experts feel things may get worse before they get better and predict another year before the housing market recovers.  Credit is tighter and not as available to as many people who adversely impacts both buyers and sellers, not to speak of builders, developers and anyone whose business is dependent on the housing market, including real estate brokerage firms and their agents.  Because the credit crunch has also affected the purchase of new homes, builders have found themselves reducing or completely stopping new projects.  Although the present market is financially devastating to a certain segment, a reduction in inventory of available homes will eventually balance the supply and demand, which will have a positive effect on the housing market. 


The good news for homeowners is that although new home sales are important, experts remind us that close to 90 percent of homes sold in this country are re-sales of existing homes. Therefore, re-sales are really, what drive the market.  The markets have a way of correcting themselves. This is not the first time the country has gone thru a real estate downturn, and it will not be the last.


Finally, buyers and sellers must learn about and be aware of the particular market they live in.  Where, for example, a pricing bubble may have existed in certain parts of the country, such as Florida, California and then often related to seaside properties, home value appreciation in other areas of the country such as Atlanta were slower and more moderate. 

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Real Estate Information Sources - General Real Estate Information
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