Phoenix Urban Living News. Real Estate In Phoenix Arizona

How Do Issues On Wall Street Have An Impact On Housing On Main Street?

The stock market experienced a difficult time what with Lehman Brothers’ bankruptcy and the sale of Merril Lynch causing the market to plummet on their news.

Many of us don’t have funds in the stock market, at least not any that we can touch for the next 20 years, so we are more concernedabout how these events will affect the housing and mortgage markets.

These events can be mostly blamed on the housing markets from the beginning, so they are sure to have a further implications on it. Just as homeowners who took advantage of low or no down payment mortgages and low teaser interest rates now feel the pressure of decreased liquidity and rising interest rates, most of the firms that are having problems now got pretty fat and rich during the real estate bubble trading mortgage backed securities and collateralized debt obligations. Since lenders could offload debt without a problem in this market, they could afford to be less careful in their lending criteria. The result of this ballooning market is that almost $7trillion in debt was created between 2000 and 2006, report Daniel Alpert of Westwood Capital. This level of debt establishment more than doubled the amount of mortgage and consumer debt that existed at the end of 1999. This could not go on without repercussions.

This type of economic shift is bound to have an effect on all markets. The International Monetary Fund predicted early in2008 that the world credit crisis could cost the total world economy $1trillion this year.

So of course the home market is going to be affected. Credit has almost gone. Consumers with mortgages they cannot afford are not willing to take on more debt, such as auto financing and credit card lending, causing banks’ revenue to fall.

All loans, and not only home lonas will be difficult to get. In one way, this will be good news, since banks will be forced to be more sensible in their lending practices.

But there may be an upside for potential buyers in this crisis. With lower levels of home loans being granted, home prices continue to fall. This type of credit situation also eliminates speculators from the market, and they have a very detrimental impact on prices. This may be a real advantage to first time home buyers who had been shut out of the housing market when housing prices were skyrocketing. If the exaggerated housing market of the early 2000s kept anyone out of the market, those who used the time to build up cash for a deposit and make any necessary repairs to their credit may be in the catbird seat, obtaining the few loans available to good credit risks at historically lower prices.