Lisa Simpson
Jun 7,2010
In: Foreclosure

The Long Term Effects of the Crisis Will Be Grave

The long term effects of the crisis will be grave. The recession is over. The economy is recovering – albeit slowly. But there is growing concern about the long term effects in the housing sector because of the economic downturn.

Professor Joe Peek of Kentucky conducted a study on behalf of Mortgage Bankers Association and came to the conclusion that the devastation caused by the recent crisis is far worse than the post World War II recessions. Peek said that the rate of savings has gone up significantly. Most of the Americans would continue to cut down on spending due to sheer necessity or fear about the future. In the housing sector it is not likely that loan defaults will go up dramatically. Bankruptcies will show decreases in the near future. It is apprehended that unemployment and low prices for properties will remain for another long stretch and the banks will continue to be shy about lending.

Among the people two sections will feel most the pinch – those who are planning to buy their homes for the fist time and the adult purchasers who buy houses after expenses go down when the children grow up and exit. The young Americans aged sixteen to twenty four will feel maximum the impact of unemployment. It will tell on their lifetime incomes and their attitudes towards society and taking risks.

Those who are about to retire are trying to postpone it or return to the work force. On their part it is an effort to build up again the retirement wealth they have lost thanks to the recession. The housing sector has been relying on both these groups to maintain growth during the coming years – especially the baby boomers whose nests have become empty.

Mark Zandi of Moody’s said, “The tougher economic circumstances for twenty-somethings and fifty-somethings will weigh on housing demand over the coming decade. The first-time buyer and second-home markets would be most directly impacted.”

Patrick Newport of HIS Global Insight in Lexington (Massachusetts) is an economist. He said that the assessments made by Peek are more dismal than theirs and theirs has hardly been rosy. He added that the housing market is becoming much more regimented and disciplined by asking for larger down payments and improved credit scores from potential buyers.

The Senate has recently passed a financial reform package that includes new clauses. Apart from putting restrictions on pre-payment penalties and controlling the compensations of the mortgage brokers the lenders would compel the lenders to give due importance to the earnings, assets and credit ratings of the applicants prior to sanctioning the loan.

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