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The housing market: either in recovery or relapse?

January 28th, 2016

 

 

The effects of the 2008 housing crisis were felt on a global scale.

 

According to Forbes, the federal reserve lowered their interest rate to less than one percent.

 

This made it almost pointless to invest in treasury bills through the Fed, otherwise known as the Federal Open Trade Committee, but incredibly inexpensive to take out loans.

 

Looking for an alternate investments, investors began buying up mortgages of various ratings or qualities from investment bankers, who had procured those mortgages from lenders.

 

This system was effective until all of the demand for mortgages was filled. Everyone who could afford to take out a mortgage on a house already had. But the investors were still hungry for mortgages.

 

Due to this demand for investments in the private sector, lenders began to grant mortgages to risky and riskier candidates, removing safety nets such as proof of income and down payments.

Mortgage Rates

Forbes reported that while these mortgages were far from a AAA investment, investors figured that, should an investor be unable to pay their mortgage and foreclose, the investor can sell the house and make their money that way.

 

As we can observe in retrospect, this plan did not work. So many people foreclosed on the mortgages that they could never have afforded in the first place.

 

This devalued the market as a whole, and supply became exponentially more abundant than demand.

 

This eventually led to the lenders, investment bankers and investors filing for bankruptcy busting the housing bubble all the way open.

 

This is how the market is currently doing: US News and World Report has disclosed that U.S. housing completions jumped 5.6 percent month over month to close December at an annual rate of 1.01 million.

 

That’s the second highest total the metric has posted since 2008 and its best showing since September, according to U.S. News.

 

These positive figures can largely be attributed to new regulation requiring certain metrics be met before the issuing of a mortgage.

 

However, despite this positive year end finish for the housing market in 2015, a dip in November began to make investors and homeowners nervous according to U.S. News.

 

CNBC reported, the sales of existing homes jumped 14.7 percent in December compared to November, according to the National Association of Realtors, but not because the housing market is suddenly outperforming all expectations.

 

The jump in December had to do with the nearly 11 percent monthly drop in home sales in November, according to CNBC.

 

After extensive observation, this drop can be attributed to bumps in the road as new regulations for the market take effect.

 

In this case, lenders are now required to grant borrowers with a specific form regarding integrative disclosures (TRID). In addition, it is providing the borrowers with information regarding every aspect of their loan.

 

Due to this many individuals pushed back closing on a deal until after they had observed this form in November, pushing sales into December.

 

As new regulation begins takes effect in the market it is understandable that total stability will not be achieved. However, compared to the housing bubble and burst of 2008, the market is in a much more comfortable place.

 

Editor’s Note: Information from Forbes, CNBC, and U.S. News were used in this report.