Why an Increase in Higher-Risk Loans May Mean Growth for the Housing Economy | Topouzis & Associates, P.C.


March 20, 2019

Why an Increase in Higher-Risk Loans May Mean Growth for the Housing Economy

Why an Increase in Higher-Risk Loans May Mean Growth for the Housing Economy

When interest rates rise, people involved in real estate begin to buzz about how this will likely to reduce the number of sales made and the prices at which homes can be purchased. And this is, in large part, true. But, as with any market, there’s usually more to the situation than may appear at first glance. The truth is, lenders have a whole host of options available to them for how to deal with decreases in buyers coming forward due to higher rates. Among these are the possibility of loosening their hold on the reins of higher-risk loans. Indeed, when lenders provide more options to people who could not afford a conventional loan—so long as they keep things within reason—the housing economy tends to go through growth.

In its 2019 Consumer Credit Forecast, TransUnion predicts that this is precisely what is to come. The coming year is likely to see a continuing low rate of unemployment, along with ongoing increases in disposable income and gross domestic product (GDP). This will mean growth for the consumer credit scenario overall, while serious delinquencies in payment will likely remain low or even decrease in number. Those behind the Forecast see indicators that the demand will remain high for personal loans and auto loans; and that where home loans are concerned, lenders are likely to increase their number of offerings to sub-prime and near prime borrowers.

In case use of the word “subprime” causes mental alarm bells to start ringing in your head, keep in mind that lenders, too, remain wary of a crisis scenario, and will be monitoring things carefully. There are means by which they can handle the dangers posed by over-reliance on these high-risk borrowers, by, among other courses of action, managing the loan amounts offered and utilizing line management strategies. Lenders would not seriously consider undertaking these options were delinquencies not as low in number as they are.

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