Lending is a significant influence on the real estate decline or growth. A mortgage in real estate works on the principle of securing funds on real property investment using the property to be invested in as the security (Griswold, 2017). Favorable lending conditions will lead to a boom in real estate, while unfavorable lending conditions will lead to a decline in real estate. In the United States, the lending market started in the 1930s when the government wanted to solve the housing problem. The lenders, however, wanted a 20-40 percent down payment, which posed as a challenge to many people at that time. This led to many of the citizens of the United States opting for renting out houses instead of purchasing. An instance like this led to a decline in the real estate market, and this shows how lending plays a vital influence on the real estate market. In a move to solve the depression of the nation at that time, the government introduced the secondary mortgage markets to help in the insuring of loans. This acted as a major breakthrough to the real estate market with a change in the phase. At this time, the real estate market shifted from recession and to boom. A secondary mortgage market is a resale place for loans. This has had a positive impact on real estate, with lenders being able to give out more funding in real property. With secondary markets, the lender is safe because of the insurer who resales the loan given to him, insuring of this loan withdraws risks on the lenders. Examples of insurers being Fannie Mae, Gennie Mae, FHA, VA, USDA, and FmHA. The lending market does not only have a direct impact on real estate but also on investors in real estate. Apart from direct property owners securing funding for property development, investors also get loans to invest more in the property. This will have an impact on real estate property owners hence increasing the property stock in the market. However, giving out mortgage loans must be regulated; otherwise, this would be a repetition of the 2007-2009 U.S. situations; the decline of house prices (Gerardi, 2010). Mortgage must also be moderate otherwise giving too much loans might also lead to the housing market crash. Currently, the lending mortgage market is enormous funding for real estate property development. With many of the people being attracted into mortgage taking due to the long-term repayment period offered, 70% of real estate purchases in the U.S. depending funding hence the mortgage market has helped a lot in real estate.
Real estate appraisal majorly focuses on the property or land valuation for purposes of coming up with a current market value, which also seen as a value opinion. However, with every property being unique, value opinion is taken as a close estimation of what the real value could be (Agarwal, 2015). Property appraisal reports will be used as the basis for mortgage loan funding; an appraisal report will also help in determining the sale price of the property. Considering this importance of property appraisal report, it, therefore, has a major influence on real estate and may bring about the housing market crash. According to (Freyboe, 2014) a study on appraisal biasness showed that the impact of client and market feedback on appraisal reports was mostly upward bias. This is mostly done by clients giving information that will not jeopardize their chances of getting mortgage loans, although the information may be biased. In the United States, the uniform residential appraisal report was created to bring about standardization in the market. This one requires an external and internal property inspection, location of the property, and descriptive photographs of the property. This will act as a valuation basis during an appraisal report, which will be used in mortgage funding. Considering its influence on mortgage funding, property appraisal has a major influence on the real estate market. On current mortgage loan funding, it is no longer just taken as a credit question anymore, accurate documentation and the correct market value is required. For this reason, appraisals are moving from being just quality based to being more comprehensive and interrogative of property value. An advanced appraisal based on specific rules and compliance requirements are being introduced into usage. This will lead to tougher appraisal reports, which in some instances may lead to more people being awarded lower mortgage loans, which lead to the housing market crash as the funding is lowered. This, on the other side, may also lead to lower real estate property prices, which will lead to an increase in buying real estate property due to a decline in prices. Property appraisal reports majorly influence mortgage loans, property buying, and selling, which is a major thing influencing the real estate market currently.
In the United States, government intervention has had a major impact on housing. With the department of housing and urban development working to ensure that all Americans have access to affordable housing. The American government intervention in real estate can be seen from back then in the 1930s. When renting was high due to the high amount of down payment required and the short-term period. This mostly led to a majority of people being auctioned, majorly taking the nation into a depressed state. In a move to solve this, the government came up with the FHA that was the first mortgage loan lender. The challenge of the associated long-term payment led to a secondary mortgage market introduction to solving issues on the lack of money for continuous lending. The government has always supported the real property market, something that has prevented its decline. However, the government has also contributed to some decline in the real estate market due to a lack of moderation, which led to the housing market crash in the past. According to (Mamonor, 2017) the situation in the United States in 2007-2009 when America experienced the greatest market decline in real estate prices was triggered by over-lending by the government to finance real estate. As of now, the government still holds a major influence on the real estate market and will remain to have an influence. Any rule made by the government has the chance of bringing housing market crash, which is unfavorable on real estate; therefore, the government intervention remains one of the major influences on real estate.
According to recent research, millennials in their early 20s and late 30s have started showing a high interest in buying homes. This generational effect on the housing market cannot be ignored and has to be taken into account. The era of the millennials is where the market is at right now, and the market should be willing to accept this wave of change and move in its direction. These millennials are mostly willing to buy homes in the suburbs, a distance away from the urban areas (Arundel, 2017). According to the available data, it wasn’t a common thing in the past for young people to invest in home buying. This may have a significant effect on real property as it may increase the housing deficit of the United States. If this happens, the demand for real property will be higher than the actual supply; something that may end up benefiting the real property investors as they aim to sell. With this expected to happen, the investors should now aim at increasing their investments in real estate. Another wave that the market should move to is the quality of interior design associated with millennial wants. According to (Arundel, 2017) the millennials do not want to see the olden interior designing style; if anyone wishes to invest in the current real property market, this is something to take into consideration. This means a change in the design of the home as the current generation is looking for more fancy homes. It must also be taken into consideration the obsession of this generation with technology. So, most of them won’t be willing to meet up with agents but rather want to do it things online. This is the time for real property sellers to invest in online services to move with this wave. With this expected to happen, a decline in the purchase of averagely build homes that are available right now may take place.
Brokers and other sales agent in real estate, greatly affect the buying and selling of real property. Their major role in bringing the client and the buyer together. On other roles, they also advise clients on property value, market condition, mortgage acquiring, and ensuring terms of a contract are met (Agarwal, 2015). With all these major roles that brokers and sales agents have, it is an indication of their powerful nature in the real estate market. Misuse of their power will majorly have an effect on the real estate market. For example, brokers who fully aim for profit will tend to make up unfavorable contract terms so that it may only favor them. This will be taken as buyer exploitation something may lead to a decline in the real estate market. This is an indication of how easily the housing market crash may be triggered by real estate brokers. On the other side, sales agents tend to be more professional as they mostly work under some firms, unlike brokers, who are primarily self-employed. Sales agents have a better knowledge of the market than the brokers, something that makes them better for consultation. According to (Agarwal, 2015) the present real estate market is working on the elimination of brokers in the market. This is because middlemen have mostly been known to be profit-oriented, forgetting the impact it may have on the entire market. All these perspectives brought together explain clearly the effects they have on real estate. Our research is based on the past and present implications they have. This article has been able to base the research on the lending markets, government role in real estate, appraisal reports, and generational effects on housing, brokers, and sales agents that influence the real estate market. All this relates to the housing market crash and our current position today.
References:
Agarwal, S., Ben-David, I., & Yao, V. (2015). Collateral valuation and borrower financial constraints: Evidence from the residential real estate market. Management Science, 61(9), 2220-2240.
Arundel, R. (2017). Equity inequity: Housing wealth inequality, inter and intra-generational divergences, and the rise of private landlordism. Housing, Theory and Society, 34(2), 176-200.
Freybote, J., Ziobrowski, A., & Gallimore, P. (2014). Residential real estate appraisal bias in the absence of client feedback. Journal of Housing Research, 23(2), 127-142.
Gerardi, K. S., Foote, C. L., & Willen, P. S. (2010). Reasonable people did disagree: Optimism and pessimism about the U.S. housing market before the crash. The American mortgage system: Crisis and reform.
Griswold, R. S., Tyson, E., & Tyson, E. (2017). Mortgage management for dummies. Retrieved from http://ebookcentral.proquest.com
Mamonov, S., & Benbunan-Fich, R. (2017). What can we learn from past mistakes? Lessons from data mining the Fannie Mae mortgage portfolio. Journal of Real Estate Research, 39(2), 235-262.
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