By Jeff Adolph
Residential Real Estate
According to many economic experts, the failed economy was sparked into existence by sub-prime mortgages, and the inevitable slow down of the real estate market. However, what many failed to identify was the extent that such lending would have on the economy.
To fully understand the impact that real estate had on the American economy, I am going to take you back to where it all began. When U.S real estate prices were booming, buyers and sellers alike were looking to capitalize, and banks were flippant about lending criteria, so loans were given for 100% of a property's value.
With zero percent down and no equity in their homes, when the honeymoon period of mortgages expired and sub-prime mortgage rates became unaffordable, many people began to default on their home loans, and this resulted in chaos for not only the real estate market but also banks. Home prices depreciated as the market became overstocked with foreclosures and banks had little money in reserve, thus the economy began to crumble.
Today, lending criteria has been reviewed, and tightened, so that only those who can afford to buy a home, and have a sizable down payment are able to obtain a loan. This then ensures that banks can progressively begin to rebuild their financial reserves and start to regain their strong-hold by reducing bad debt.
Therefore in terms of economic recovery, financial experts believe that all eyes should be firmly on the real estate market, because as this changes so to will the economy.
Article Source: decanherald.com (2009) Recovery Should Begin in 2010; available online at www.decanherald.com
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