Uncertainty Reigns in Housing Forecast
After several years of dreadful conditions, the housing market is finally showing signs of a recovery. Several factors are handicapping the rate at which it is happening. One critical component is the reluctance among many lenders to make new loans. Stung by accusations that they let standards slip, many banks and other financial institutions have set strict guidelines for borrowing that are crimping the rate at which recovery can take place.
A reluctance to make new loans is understandable given the fact that so many mortgages ended up in default. Other factors are at work within lending institutions themselves. Many have severely cut staff making it impossible to process as many loans as they once did. They lack the people needed to check applications to see if a borrower is credit worthy enough to risk giving them money.
High levels of unemployment also make it uncertain how long it will take the economy to fully recover. Few jobs are available. Many people are looking for work. This acts to depress wages. No one can say how long this condition will persist.
Regulatory Climate a Factor As Well
The housing market is regulated by local, state and federal governments in numerous ways. Local governments decide on zoning rules. State governments make rules on air quality and traffic that impact housing. The federal government oversees regulation of the loaning industry that finances mortgages.
The nation is closely divided when it comes to politics. This makes it hard to predict which party’s candidates will win in the next election cycle. That in turn makes it hard to tell what sort of regulations will be in effect in the future. The two major parties have vastly different views on how to regulate the housing market.
Fannie Mae and Freddie Mac have long been critical institutions when it comes to making home mortgages. Both are quasi governmental agencies heavily influenced by federal oversight. The two parties differ when it comes to how they should be run.
Clear Guidelines Needed For Full Recovery
Experts agree that legislators need to decide on several major issues in order for lenders to be confident about making new loans. The current conversation about tax reform has often included talk about whether to restrict or eliminate deductions for mortgage interest. Changes here would have a huge impact on housing. Some have suggested that such deductions be limited to just one home. Others want to restrict deductions to certain amounts.
Another element in question is the percentage a borrower must put down in order to obtain a loan. If the number is 20 percent rather than 10, loans may become unavailable to large numbers of people who wish to purchase a house. This would depress housing prices. That in turn would lead to fewer housing starts. Such conditions could lead to higher levels of unemployment. All these factors tie into one another. On the other hand, 10 percent down payments could lead to risky lending. Such practices triggered the credit crisis, and lenders are not willing to take risks associated with poor lending practices of the past.