Buying Real Estate During Economic Crisis
- 17.10.2008
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Buying real estate during the economic crisis has become more difficult. In this economic crisis, mortgage lenders have tightened lending requirements making it more challenging to obtain a home loan. But if you’re in a stable situation with a good credit score you may still be able to refinance your mortgage loan.
If you don’t have a job, you’re not buying a house — at least, you’re not buying a house unless you’re paying for it in cash. And for most folks, cash seems to be in short supply at the moment.
The credit crisis continues to grow in scope and scariness. Third quarter 401(k), 457, 403(b) and IRA statements are out and mental calculations are being made about how much the numbers have dropped since the statement arrived in the mail.
With the central banks around the world working in concert (for the first time ever) to lower interest rates, rising unemployment, and a hotly-contested U.S. presidential election in less than four weeks, it’s no wonder that even the most optimistic real estate agents are quaking in their shoes.
You can say what you want about the economy, but all real estate is local. If your local economy has the sniffles, the local real estate market is likely to catch it too.
As the U.S. economy falls into a recession, jobless numbers have increased to the point where more than 750,000 jobs have been lost in 2008. The unemployment rate (as of October 7, 2008) was officially 6.1 percent. Some unemployment experts believe that the true rate of unemployment in the U.S.– if you factor in those making less money than they were two years ago (including real estate agents), or working at part-time jobs rather than full-time jobs because they can’t find the right situation, those who are underemployed, and those who have just given up looking for a job and have fallen off the rolls — is approaching 10 percent.
Most economists, including Nobel prize-winner Gary Becker, believe unemployment will rise, although nowhere near the 25 percent unemployment the U.S. experienced in the 1930s.
Still, the connection between unemployment and a faltering real estate market is strong because lenders won’t give you a mortgage these days if you don’t have a job with enough income to cover the payments.
In Michigan, unemployment during August officially rose to 8.9 percent (up 1.7 percent since August 2007), according to the Michigan Department of Labor and Economic Growth. The state has one of the highest levels of foreclosure in the country, and very soft existing and new construction home sales.
On the plus side, if you have cash, you can buy an enormous McMansion for not all that much.
The credit squeeze has reminded banks and mortgage lenders that credit scores, while perhaps a good predictor of whether someone has the desire and financial stability to repay a mortgage, don’t actually pay the bills. They don’t take into account whether someone has a lot of cash on hand for emergencies or is just making ends meet. A medical emergency, job loss, divorce or death can disrupt the best-laid plans.
