The housing market has long been one of the most reliable indicators of economic health, and consequently, potential recessions. In recent years, the U.S. has experienced a boom in housing, and this has been followed by a predictable rise in mortgage credit. Now, analysts are beginning to ask – what will housing credit look like during the next recession?

The effects of the last recession are still being felt today in the form of tighter lending standards and higher down payments. One positive outcome of these changes is that this new environment is far more secure for lenders and thus, mortgages are much safer for the short term. However, analysts are now observing that long-term effects are starting to show. As mortgages become harder to obtain, home ownership is becoming increasingly unrealistic for many Americans, making it a major challenge for lenders to find new customers.

Additionally, one looming concern is that lenders’ willingness to accept risk has fallen dramatically. During the recession, Fannie Mae and Freddie Mac, the two largest sources of mortgage credit in the country, implemented significant changes that limited the size of loans available for customers. Though this has improved stability in the Housing market, it has had the consequence of limiting access to those with lower incomes.

Finally, the situation isn’t helped by the ongoing trend of declining household formation, with millennials leading the way. This population of potential buyers is more likely to be burdened with student debt, making it difficult for them to qualify for mortgages. This contributes to an overall decrease in housing demand, pushing lenders to actively seek out new buyers.

As the U.S. economy continues to recover from the last recession, it is important to understand the effects of the mortgage entitlements marketplace. Analysts are beginning to ask questions about what credit availability will look like in the event of the next recession, and their concerns mainly focus on the potential for mortgage credit to become too restrictive. Though tighter lending standards have been beneficial for increasing overall security in the market, the current environment has put increased strain on lower income buyers, making home ownership a challenge for this demographic. This combined with the steady decline in household formation presents a significant obstacle for lenders, who must actively seek out new buyers to fill their demands.

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