Global Issues Affect U. S. Mortgages

This article byh Lawrence Yun, chief economist of the National Association of  Realtors, is reproduced in full  from his article in Realtor magazine.

Economy: Global Issues Affect U.S. Mortgages

The Gulf Coast oil disaster and European economic issues will likely affect the U.S. mortgage market.

By Lawrence Yun
August 2010

With the home buyer tax credit ended and the housing market now largely on its own, how can we expect the real estate market to perform? In the near term, we’ll probably see home sales slide measurably lower. By the third quarter, it will be up to job creation and consumer confidence to bring in buyers.

One factor that should help the market is the improving availability of financing for second homes and high-priced properties that require a jumbo loan.

These segments of the housing market were essentially shut down last year as banks scrambled to boost their capital to well beyond government “stress test” levels. Even the most creditworthy buyers found it difficult to get financing.

Today, banks are steadily moving toward more normal lending activity, even in sectors that don’t have government backing—not surprising given the huge profits and improved capital situation in the banking sector. Commercial financing could improve, too.

But as the housing market shows signs of stronger health, bigger economic issues are now on the horizon, putting important variables outside of the control of our market.

The meltdown in Greece could impact the capital position of U.S. banks if that country defaults on its obligations and Germany and other big economies of Europe say no to providing additional bailout funds to Greece and other at-risk countries like Spain and Portugal. With global capital at risk, money in the United States for any mortgages other than those with government backing could once again disappear.

The devastating oil spill in the Gulf of Mexico is another big unknown. The full impact won’t be understood for years, but we can expect domestic oil prices to rise measurably or the United States to import more oil. In either case our economic growth will be impeded.