In the third part of our series on the subprime crisis, we focus on the challenges presented to homebuyers. Need to read the previous installments? Check out The Subprime Crisis: A Beginner’s Guide and Subprime Crisis Effects in Los Angeles.
The subprime crisis affects everyone. "But I have excellent credit," you might be thinking. "Why would I be affected?"
Regardless of your credit score, the subprime crisis touches your financial outlook in some way. Because financial institutions have suffered, many banks and mortgage companies have increased their scrutiny of mortgage applications and tightened their lending criteria. Even those with excellent credit scores may face a longer approval time for loans as lenders, still reeling from their lax lending practices in days past, tighten their monetary belts.
Fewer borrowers may be approved than before which may result in a chilling effect on the real estate market. Fewer qualified borrowers result in fewer home sales. Fewer home sales decrease liquidity in the market, forcing sellers to become more competitive with each other. It will also result in longer days on the market for the average propety.
Fewer homebuyers will also result in fewer opportunities to trade up to a larger property. Many homeowners contemplating moving to a larger home would rather sell their current property than act as landlord of it. If those owners can’t sell, they won’t buy up either.
Even now, as the effects of the crisis are just beginning to be seen, wary buyers and sellers are playing a cat–and-mouse game. Sellers still remember the rapid appreciation in value properties saw until recently, and many are afraid of pricing their homes too low. On the other hand, buyers, wondering if the beating the real estate market is suffering on the national level will soon be felt in the the local market, are staying on the sidelines, afraid to make an offer that’s too high. This is resulting in homes staying far longer on the market than they would have just several months ago, even in areas where foreclosures have seen little to no increase during the crisis thus far.
The current climate creates new opportunities for buyers and sellers willing to change gears and come up with new strategies to profit from real estate. Like the stock market, there’s always a way to make money in real estate, regardless of whether the market is going up or down.
In the next installment of our series, we’ll explore some of those real estate strategies.