Financial Crisis and Housing Market

The meltdown of the sub-prime residential mortgage market in the USA was the start for the financial and banking crises 2007-08 and these crises spread globally, triggering after-effects that are still being felt today. There were many reasons for these crises occurring which were influenced by financial institute regulators, credit agencies and government housing policies. Several financial institutes collapsed but the housing market was the main victim of the financial disaster in terms of consequences and causes.

In the USA the houses prices increased by 124% during 1997 to 2006 but by September 2008 housing prices declined by over 20%. This horrific crisis meant many home owners have negative equity in their homes (their homes were worth less than their mortgages). By November 2008 10.8% of all home owners (approx. 12 millions) had negative equity in their homes. According to a survey conducted by simplyzigzag.com 60% of home owners said that the financial crisis effected their buying decisions and 33% were those people who are still waiting for stabilisation before re-entering the housing market. The financial crisis not only affected the housing market but also created psychological havoc in buyers’ minds.

UK home prices have increased dramatically between 1998 and 2007; 90% faster than any Eurozone country except Spain, but after this, prices fell dramatically by 13%. As for the issue of affordability, the financial crisis in the UK housing market faces a further major problem, particularly in relation to housing market finance (i.e. mortgage). Prior to the financial crisis borrowers were able to finance up to 95% (and sometimes more) of the purchase price using mortgage debt. Post crisis, banks withdrew the majority of their offers because of lack of consumer affordability and most banks still require a 25% down-payment compared to a historical average of 10%. It is now, after six years, that analysts can say that the UK housing market is showing signs of its first significant revival since this crisis. See http://www.bbc.co.uk/news/business-21385919.