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Will Recession Spark a Housing Market Crash?

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The booming housing market is showing signs of slowing, with a combination of skyrocketing home prices, record-high mortgage rates and the severe supply-demand mismatch that has dominated the past 12 months. It suggests that it may eventually stop. At least give potential homebuyers a break.

But what looks like good news is feared by many as a sign of a potential housing collapse looming on the horizon.

Many see this as a sign that the United States has entered a recession, as it reported a second straight quarter of decline in gross domestic product (GDP) on Thursday. 2007-2009 was the worst recession in the US since the Great Depression of the 1930s.

US house prices fell on average by more than a fifth from the first quarter of 2007 to the second quarter of 2011.

Kevin Kendra, Managing Director Fitch Ratinga credit rating agency that provides commentary and research on global capital markets, thinks a housing crash like 2008 is unlikely.

The booming housing market is showing signs of slowing down.
Paul Hamilton/Getty Images

“Before the financial crisis [2007-2008]It was much more common to use loans, or down payment assistance programs, that allow borrowers to move into homes for much less than the traditional 20 percent down payment,” Kendra said. Newsweek.

“Some were able to take out a second loan to cover the down payment, so they could get into the house for around 5-10% of the equity in the house, and possibly even less depending on the location. ”

Kendra said this type of risky borrowing has become less common since the 2008 housing crash, and people who have taken out loans to buy homes in the past few years will be able to pay off their mortgage interest. It’s much more likely. It did so before the housing bubble that marked the Great Recession.

“When this type of situation occurs and the market then turns around, borrowers will very quickly go into negative stock positions, but the existing mortgage portfolios that we’re seeing have that kind of situation right now. No,’ he said.He said Newsweek.

“If you look at existing RMBS, [Residential Mortgage-Backed Securities] For example, the borrower and the equity that the borrower actually built into the house helps its performance considerably,” he said.

“If they want, the borrower can actually sell their home and move into an apartment, become a renter, etc. and withdraw a lot of the equity they have in their home. There was a big buildup on that cushion due to the price increase.”

“There could be significant market value or price adjustments, but our borrowers are still positive on capital. I think it will be necessary to make a significant adjustment in housing prices.”

The last time the US had a recession was a little over two years ago, and the pandemic severely damaged the economy. But it lasted only two months. During that period, the housing market flourished amid high demand due to low interest rates on mortgages.

Kendra doesn’t expect another recession to drive home prices down and disrupt the market.

“I think there’s a general slowdown in the economy across many sectors and spread to almost all regions. I think that type should slow down.” [on home prices], but housing prices will not fall significantly. So I think it’s going to be a manageable reduction in housing prices. ”

New and existing home sales have fallen over the past five months, slowing demand as high mortgage rates, rising interest rates, and inflation combine to make it harder for potential buyers to buy a home. indicates that there is

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