Housing Market Crash: Strategies for Forex Trading

The Impact of the Financial Crisis on the Housing Market

In 2008, the global economy was at one of its deepest troughs since the Great Depression. The primary reason for this crisis were subprime mortgage loans, which caused the US housing market to crash and set off a domino effect that would eventually upend global financial markets. The crisis also had an impact on the housing market in other countries around the world. In China, the situation was quite different. Leverage was kept to a minimum and the government took steps to ensure that prices were kept stable. This has become a major mitigating factor when it comes to possible contagion from the downturn in the Chinese real estate market.

Reasons Behind the US Housing Market Crash

The US housing market crash was primarily the result of the excessive levels of mortgage lending in the years preceding the crisis. Subprime mortgages, which were offered with the intention of providing opportunities for lower-income households to become homeowners, were given out in large numbers. These mortgages often contained adjustable rate features and were given out without any scrutiny of debt-to-income ratios, resulting in many people taking out mortgages that they ultimately could not afford. As numerous homeowners defaulted on their mortgages, foreclosures skyrocketed, leading to a rapid decrease in prices.

China’s Mitigating Factors Against Financial Contagion

Unlike the US, China took steps to ensure that the housing market stayed stable and avoid the possibility of contagion from a potential housing market crash. During 2005, the Chinese government took an active role in regulating the housing market, including tightening loan policies and introducing a buyer’s tax that essentially favored first-time buyers. Despite the rapid increase in house prices during this period, leverage was kept to a minimum. As a result, households were not overleveraged and, thus, had the flexibility to adjust their balance sheets in case of any shocks.

Conclusion

The 2008 financial crisis had far reaching effects on the US housing market, leading to a rapid drop in house prices and mortgage defaults. However, China was able to limit the effects by taking a proactive approach and introducing policies that reduced leverage and kept prices stable. As a result, it is unlikely that contagion from a downturn in the Chinese real estate market would have a similar effect as the US in 2008.

Housing Market Cooling: What Does This Mean for Home Buyers?

As the housing market begins to cool off, buyers across the nation are asking one question: is a crash on the horizon? Experts agree that while prices may have already begun to recover, the market is far from crashing anytime soon. In 2006, the housing market started to dip as home prices rose, subprime mortgages skyrocketed, and lending practices became more lax.

In the 10 years following, lenders were able to recover from the crisis by tightening their lending requirements. Now, with home prices plateauing in many major metropolitan areas across the US, there is a feeling of relative safety in the housing market. But what does this mean for prospective buyers?

Lower Prices – A Boon for Home Buyers

The slower market presents an opportunity for buyers to purchase a home or investment property at a lower cost than they would have previously. With prices more stable, buyers are more confident in making large investments knowing that they won’t lose out on their investment.

Additionally, when the housing market slows, further opportunities arise for buyers to snag a great deal on a property. Many sellers become more motivated to move their properties quickly, meaning a buyer can often negotiate a greater discount on the asking price. This increases the possibility of a buyer finding a great home or investment property at a price that fits their budget.

Expert Predictions for the Housing Market

While the housing market has exhibited some small signs of cooling off, experts are still predicting a prosperous outlook for the market over the next few years. According to urban economist Joe Cortright, while the market might not reach the fever-pitch of 2006, the long-term trajectory of the market should remain healthy and strong. By 2023, prices are expected to have recovered and stabilized, with many metropolitan markets even showing signs of growth and prosperity.

This means that those who are looking to buy now won’t need to worry about losing out on their investment in the near future. Prices are likely to stay strong, possibly even increasing in major metropolitan areas, creating an ideal environment for buyers to enter the market.

Overall, the current cooling of the housing market does not point to a crash or a complete failure. Rather, buyers should be encouraged by the stability of the market, and use it to their advantage to find a great deal on their dream home. With prudent investment and informed decisions, the current market allows savvy buyers to make major investments that will see returns in the long-term.