How the Credit Crunch Affects the Real Estate Market

The economic crisis which has hit the globe towards the end of 2008 has impacted the real estate market in more ways than one. Initially, the sub prime crisis created a credit crunch, as banks and lenders were less willing to lend and investors were slowly moving away from credit schemes. This crisis even reversed the market trends and created fear psychosis amongst investors. The rates have taken a correction since the last two years and brought them down. The crunch has clearly had a negative impact on real estate players, and the banks which lend to them, resulting in frozen or renegotiated loan commitments and, in extreme cases, forced sales.

The effects of the crisis have been felt war and wide, and in far of areas. From New York to London, the effect has been the same, with builders freezing projects and lenders not willing to lend to new players. Some companies have started facing a severe liquidity crunch and have even started selling their properties at below par rates to raise money to pay existing loan interests. Amidst all this, some emerging players have taken this opportunity as a chance to expand their horizons. The overall investment scenario has been bleak and is expected to be bleak for the rest of the year as well.

All this started when lenders started giving away mortgage loans as a sub prime, without clearly verifying facts. The excessive supply led to fall in prices, and once prices fell, the lenders were unable to retrieve the loaned amounts. This led to a credit crunch in banks which multiplied itself into a situation, where in the banks were unable to lend at normal rates, because of the losses they had incurred with the sub prime loans. This affected the buyers as well as the loans that they were offered had high interest rates which resulted in minimal or nil investments in the real estate sector.

Some economies who have an internal market for their products have survived this crisis to a certain extent. The real estate companies in such markets have used price reductions as well as some other marketing tactics to lure customers, there by managing to sell their products despite the gloom.

Credit crunch is not only restricted to real estate investment; it has also exerted negative effects on other sectors of US economy. The federal government is trying hard to reduce the impact and bring the entire situation as close to normalcy as possible. The home refinance program and other existing schemes like section 8, VA loans and such ideas are being revived with greater interest to boost the real estate market and thereby save companies as well as employees from facing lay offs and closure.

How the Credit Crunch Affects the Real Estate Market