Global Issues Affect U.S. Mortgages

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

August 1, 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.

Lawrence Yun
Chief Economist and Senior Vice President of Research at the National Association of REALTORS®

Yun oversees and is responsible for a wide range of research activity for the association including NAR’s Existing Home Sales statistics, Affordability Index, and Home Buyers and Sellers Profile Report. He regularly provides commentary on real estate market trends for its 1.3 million REALTOR® members.

Dr. Yun creates NAR’s forecasts and participates in many economic forecasting panels, among them the Blue Chip Council and the Wall Street Journal Forecasting Survey. He also participates in the Industrial Economists Discussion Group at the Joint Center for Housing Studies of Harvard University. He appears regularly on financial news outlets, is a frequent speaker at real estate conferences throughout the United States, and has testified before Congress. Dr. Yun has appeared as a guest on CSPAN’s Washington Journal and is a regular guest columnist on the Forbes website and The Hill, an “inside the beltway” publication on public affairs.

Dr. Yun received his undergraduate degree from Purdue University and earned his Ph.D. from the University of Maryland at College Park.