The Fall Of Mighty Mortgage Market

If you are planning to invest major chunk of your funds in real estate, it’s time for you to hire a financial consultant. Real estate, which was once considered a safe investment, is not topping the priority list among investors in US since 2007. The world saw a tremendous business potential in the mortgage market in early 2000’s. The ever increasing pool of new homeowners and rising real estate price attracted numerous consumers to invest even more. This led the residential mortgage market to reach a tremendous size nearing $10 trillion by late 2007. However, since 2007 the same market has witnessed the biggest fall ever in US.

Since US has attached itself to most of the financial markets in the world, the dilemma is now global. The UK’s Independent has predicted that the “UK mortgage market will contract by 80% in 2009” and the trend of falling house prices will continue for another 12 months. Although Nationwide Group Development director Tony Prestedge has estimated the value of Mortgage market to be £18b in 2008 from £90b in 2007, investors are still optimistic about this year’s prices.

The continuous shrinking mortgage market has recently seen some activity in financial firms as they are trying their best to recover and bring the market back to normalcy. After lowering the interest rates substantially, the purchase index still shows a fall of 6.2%. According to Housingwire.com, the fall in percentage of mortgage applications in the week ending Sept 25th was 2.8%. Even steeper fall was quoted by another weekly survey, Mortgage Maxx, which shows the decline of 7.3% in the same week, which reduced the count of multiple submissions by same borrowers.

In 2008, conditions displayed worse effects, as the total mortgage applications were down by one third as compared to 2007 and almost half of 2006. The rejected application rate amounted to 32% in the same year, according to Builderonline.com. Even these statistics were due to visible government efforts as the loans back by Federal Housing Administration mounted to 21% from under 5% in 2005 and 2006.

The worldwide effects were worse as well. The fall of Mortgage market affected even the tiny and under-developed countries, which were thought to be completely safe from the crises consequences. For example, Bulgaria shrunk 20 times the size of its original mortgage market in early 2009, as stated by Novinite.com. Compared to the huge sum of BGM 355 M invested in early 2008, the Bulgarian mortgage market received an amount of just BGN 18 M in the same months of 2009.

The mortgage-backed securities had been bought by investors from all around the world due to which, it’s not only a local crisis for US, but the world. However, the estimations and predictions by experts sound quite decent this year. Lowered interest rate of below 5% has attracted loads of new mortgage applicants which are now four months high. The world crisis now seems to slowly loose the effect and indicators of market correction are slightly visible, however it’s too early to jump on any optimistic conclusion.