What happened to the housing industry in 2008?
The US housing industry composes of several components from construction of houses, sale as well as resale of virtually all the residential holdings all over the country. This sector though concentrates on housing implicitly has a great contribution to the overall economic status as a whole. The housing industry experienced an economic bubble that burst in August 2008 following the collapse of the two world largest mortgage firms in the US; Freddie Mac and Fannie Mae respectively. The occurrences leading to these events were not spontaneous but had a history as early as the first quarter of the 21st Century as a gradual process. The housing bubble affected entirely the US housing market and spread to numerous states like Oregon, Michigan, California, Nevada, Florida, Northern Mega polis and Colorado (Edward 12).
The housing prices peaked up to an all high price as early as the start of 2006 due to monetary policy adjustments by the Federal Reserve. Many people owned residential as well as commercial properties since they could have afforded due to low interest rates. It is due to increased number of foreclosure rates in residential housing sector among commercial agencies, Mortgage firms and homeowners that contributed to the 2008 housing crisis. All the stakeholders in the housing sector were adversely affected when people could no longer repay back their loans and mortgages. The banking industry became conservative to advance more loans after realization that the credit level has contracted due to increased interest rates set by the Federal Reserve in its attempts to prevent the economy from going to a liquidity trap. People started trading and selling credit to save their houses from repossession by mortgage firms and commercial banks which had given out loans at low interest rates and were incapable to pay. Unfortunately, this trend never thrived and many people were at risk of losing their residential houses. At the end of 2008 and early 2009, there was enormous repossession of houses and over 2 million citizen were left homeless and big mortgage companies either collapsed and other reported huge financial losses (Paul 15).
Remedies for the housing problem
The government has been trying and implementing all the means possible to stabilize the housing sector without success. The housing market has deteriorated with numerous and persistent home foreclosures on the rise while home prices has been escalating to high levels. Mixed remedies have been proposed by the concerned authorities. Federal Deposit Insurance Corporation has been advocating for modifications to be carried out in the mortgage sector. However, the treasury and the Federal Reserve on the other hand have opted to bail out Freddie Mac and Fannie Mae for the provision of cheap financing in the mortgage industry. Reduction of interest rates to assist home owners afford monthly repayment of loans have also been implemented without much avail since they also become default after six months (Colin 6).
Therefore with the failure of all these measures, other means and ways to solve the housing problem are paramount for stable national housing market. One the government should consider subsidizing the interest payable by homeowners on monthly basis. This may be effective mostly with consideration of those loans issued when the housing market was at the peak between early 2005 and late 2007 burdening homeowners with high repayment interest rates. Another approach that is worth considering is the advancement of mortgage payments to citizens even in cases of default. This would work well when private investors are included and participate fully in the program through their guarantee to mortgage receivers. By implementing these measures, the financial sector would be relieved off stress of credit contraction and augment the trading value of mortgage supported securities. Lastly the housing national market can be stabilized when housing prices are left to market forces. This would force the prices to lower levels following their long term trends which consequently will be determined and influenced by multiples of the rent repayments in annual terms. These reduced prices would attract and boost effective market demand which would reduce and decrease the vacant rate that has been recorded over the years (Colin 8).
Predictions for the Q2 2010 housing Industry
The unemployment rate will not reach way beyond the 10% level; this will not only be in the housing sector but will also apply to the overall economy. Due to credit crunch, banks will curtail their lending to corporate sector and households while preferring to transact inter – bank lending practices. This will almost push up unemployment rates close to 10%. In addition, the saving decision of both households and other key players in the economy are revised, saving level might increase by 12.6% to reach a high level of approximately US $ 100 billion (Tim 16).
This would be necessitated by the credit crunch experienced in 2009 and commercial bank’s behavior of selective lending for fear of default. Due to the conservative lending behaviors of banks, office rents will decline from US $ 120 to a bottom of US $ 111 in2010. However, this trend could recover in Q4 2010 and 2011 but not to the initial value of US $ 120 per square meter. The prime rate for mortgage and residential housing foreclosure would account for nearly 80% of the entire mortgage in the US real estate market. Of these figures and values, it is estimated that, 14.4% of the entire mortgage in the US real estate market will face risks of foreclosures in Q2 2010. In addition the subprime loans facing foreclosures or in delinquent state would go up to 40% (Tim 21).