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Wednesday, September 18, 2013

The housing market

The real estate market is slowed by unemployment, wage stagnation and banking regulations
Federal Reserve MBS purchases help the real estate market
By Brian Davis

A few years ago when the recession began and the housing market began to plummet, people were afraid it would be the end of the world.  While many people have lost their homes to foreclosures, there is certainly more optimism today; after several long hard years, the housing market has begun to recover significantly.

As recently as last year, some people still had no faith in the real estate sector, but the latest reports on the economy of the United States have shown that there has been an increase in private domestic demand and growth of the economy. 

Reasons for recovery

The Federal Reserve has begun to purchase mortgage backed assets rather than Treasury notes, and this has essentially been one of the most important factors driving the recovery of the real estate sector.  The increase in mortgage refinancing as a result of lower mortgage rates has also encouraged many homeowners to take this course of action.  This has helped by allowing for more home purchases and increased private consumption.  Real estate investment has become more lucrative for investors recently because of the lower return on assets such as long-term bonds.  Because of mortgage financing programs which have been instituted recently, such as HARP and HAMP, people have been able to refinance their homes and increase their assets. 

Why is the progress slow?

While the housing market seems to be getting better, this is not the case all across the board.  With the unemployment rates at 7.3% in the US, the economy is still struggling to stabilize itself.  People who are not employed have no expendable income and therefore cannot buy goods and services and often cannot afford to pay their rent.  Because of this first proverbial domino falling, the landlords and homeowners who cannot collect rent in turn cannot afford to pay their mortgages resulting in loan defaults, evictions, and foreclosures. 

While the progress and recovery is occurring, there are still some hindrances including the unemployment rate and people’s fear of losing their homes or other valuable assets.  Many people who are employed have also cut back on spending in an effort to save money for the future when they need it.  While this is good for the individuals, the economy relies on the spending of consumers for its recovery.  Since people are not spending as much, the recovery process has slowed.  Still, home supply and home improvement stores such as Lowe’s and the Home Depot have boasted an increase in their sales, indicating increased activity in the housing sector.

While the housing market and the American economy in general is on the road to recovery, it will take years and plenty of hard work for a full recovery (measurable by 5-6% unemployment) to be achieved.  The fact of the matter is that regardless of all the strife and hardship of the American people and the fluctuations in the housing market, the health of the real estate sector is on the rise.  Continued low interest rates will help, as will faster homebuilding rates.  While the U.S. looks to scale down Fannie Mae and Freddie Mac, government sponsored entities which support the sale of mortgages, it will need to be done slowly to prevent another credit crunch.

About the author: Brian Davis is the Vice President of ezLandlordForms, a leading provider of important documents like residential leases and more.

* Image license: Woodsy; RGBStock royalty free