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A credit or capital crunch is a period of time when capital for borrowing is very difficult to obtain because lenders stop lending out of fear that borrowers may not be able to pay back the loan due to rising unemployment, bankruptcies, mortgage defaults and other economy-generated problems. They tend to reject everything except borrowers with the very best credit, which are usually the safest loans, and they tend to charge higher interest rates, or perhaps they may do both. Words: 512
In further edited excerpts from his original article* Marco Benavides (www.realestateproarticles.com) goes on to say:
While we are slowly working out of the current credit crunch as banks ease restrictions, the effects or the credit crunch can still be felt. The subprime mortgage crisis was a contributing factor to the credit crunch, but it was not the only cause. In fact, lender permissiveness in lending and consumers spending beyond their means, even with poor credit ratings, were also major contributors.
Whatever the cause, the financial crisis led to unemployment, unemployment led to families in financial crisis, which led to loan defaults, which led to foreclosures, which led to bankruptcies, and it became a vicious circle. Homebuyers stopped buying, which led to an oversupply of homes, which caused builders to slow down or stop new construction projects, and the cycle continued. There was also a price correction, where home prices got down to levels not seen since 1993, but buyers were still not buying.
The real estate market is thought to have touched bottom and has been seen rebounding of late. However, housing stocks need to come down in order for the housing market to pick back up. For housing stocks to come down, buyers need to buy, and banks need to loosen restrictions, which has also been seen of late. Lenders are still being much more cautious than they were before the subprime mortgage crisis, but it is thought that they will never be as permissive as they were before 2007.
As restrictions are eased, more buyers will qualify for mortgage loans, more homes will be bought, and the real estate market will continue to fully recover, but it may take some time before everything is back to normal levels. There are people who have been turned down for mortgage loans in the past two years who should have gotten a loan, and these people will be able to find loans and perhaps at much better terms than they would have gotten two years ago.
Patience will win out in the end if buyers continue to be cautious and conservative in their spending habits. Many people have begun to fix their credit, and they need to continue taking the necessary steps to rebuild their credit scores.
The effects of the credit crunch on the real estate market have been serious, but negative trends will not continue forever.
*http://www.realestateproarticles.com/rss.php?rss=284
Editor’s Note:
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