Housing Woes

Posted by: Gene M. | Dec 27,2007


Two articles have come out in the past two days which are a pretty clear harbinger about the economy in 2008.  On my Yahoo homepage, I woke up to an article yesterday stating, “Home prices on the decline.”  Today I woke up and found this article, “Mortgage applications fall to lowest in a year.”

If you’re an optimist, you could look at it like this: if home prices continue to drop, mortgage applications will eventually go up, as homes will be more affordable.  But the pessimist thinks that the mortgage industry is in turmoil.  Lenders are now enacting more strict borrowing standards, so fewer mortgags will be given out regardless.  It’s pretty much a case of too little too late.  These standards should have been enacted over the last several years.  With greater standards, we could have avoided the mortgage crisis .  

The reason I’m more of a pessimist is because I don’t fully expect the lending industry to right itself once the housing crisis is over.  My guess is that the lending standards will start becoming lax again, as lenders look for quick profits over long-term viability, especially when they need to make back some of the money they’ve recently lost to the credit crisis.  

As the article says, it’s probably not going to be until 2009 until the housing market is in full recovery.  Why do I write about mortgages on a credit card blog?  Because the health of the mortgage industry affects the entire economy.  With the housing market at a slowdown, we could be entering into a recession for 2008.  I don’t see the credit crisis turning into a credit disaster, but 2008 is going to be a time when average consumers are much more wary about pumping money into an economy that is in dire need of flush funds.  

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