The financial crisis of 2008 made it difficult for individuals to get the credit they needed to buy homes. It was also difficult to start businesses or get credit cards with reasonable terms without a sterling credit score and history. While changes have been made to avoid another severe crisis in the future, a downturn will happen at some point. When that happens, those who are looking to buy homes may be impacted the hardest.
Buyers May Already Be Overextended
As the economy started to gain traction after 2010, credit card companies and other lenders started to loosen their lending standards. At the same time, individuals were dealing with stagnant wages and rising prices for a variety of goods ranging from groceries to vehicles.
Therefore, people became more reliant on credit cards and personal loans to pay their bills. The next time that the economy experiences a downturn, it may be harder to stay current on those debt balances or pay them down. This may result in a lower credit score or a lack of creditworthiness needed to buy a house.
New Regulatory Environment
CECL was designed to force creditors to more accurately account for the values of bundled loan assets, which should (in theory) help avert another real estate crash. By requiring more accurate accounting of loan values, it may be harder for sellers to manipulate the value of their homes to help buyers qualify for financing.
It may also help lenders better assess the true value of a property and what their losses could be if a buyer defaults on a loan. Ultimately, all parties involved in a real estate transaction will have more incentive to base their decisions on pure numbers instead of emotion. That will likely keep the housing market in check even during an eventual downturn.
There May Be Fewer Available Homes
Current homeowners may not want to sell if they aren’t sure that they could qualify for a mortgage on a new house. They may also be reluctant to sell if they don’t think that buyers will agree to match or exceed a list price. A lack of inventory can result in home prices that either stay flat or increase, which can be bad news for those who have limited housing budgets.
Homes May Not Be Available in Preferred Locations
Houses that may be available in a buyer’s price range might not be in desirable locations. For example, they could be located in parts of town that have high crime rates or poor schools. They could also be located in areas that aren’t close to major roads or hospitals. Therefore, buyers could have to spend more on transportation and other costs associated with living in rural areas.
When the next economic downturn occurs, borrowers may find that lenders are less generous in giving out home loans. Combined with a tighter job market and less inventory, it may be harder to find a house at the right price and with favorable mortgage terms.
That being said, if you do buy a home, you want to make sure that it’s completely safe to move into. Check out this article about some health hazards to avoid when buying a home!