The slow economic recovery and the lack of substantial job growth could cause negative, lasting effects on the housing markets, according to a study released by the Mortgage Bankers Association (MBA).
The study, titled ‘Household Reaction to the Financial Crisis: Scared or Scarred?’ and sponsored by the MBA's Research Institute for Housing America (RIHA), analyzes how Americans will respond to the current crisis in terms of consumer spending, saving rates, credit supply and implications for the strength of the economic recovery, with a focus on the housing markets.
‘On the housing front, it is unlikely that the dramatic rise in loan delinquencies, home foreclosures and bankruptcies will show a meaningful decrease, as high unemployment and low house prices are widely projected to remain for an extended period, as well as the rise in problem loans at banks that will restrain their willingness and ability to provide credit,’ says Prof. Joe Peek of the University of Kentucky, who conducted the research for the report.
The report also determines that banks remain in weak financial health and are unlikely to substantially increase credit supplies in the near term. As a result, the report predicts that many households will emerge from the recession with severely damaged credit ratings, hindering their ability to access credit for years to come.
Furthermore, the report states that credit underwriting and pricing models developed with data from years prior to the current economic crisis were heavily influenced by experience with moderate macroeconomic volatility. As a result, the current downturn will likely play an outsized role in credit decisions over the intermediate term.
The full report, which also examines household wealth, unemployment and underemployment, and the challenges facing college students entering a stagnant job market, is available online at the RIHA website.
SOURCE: Mortgage Bankers Association