Downturn of Housing Markets Hurting Financial Sector in U.S

There was a substantial slow down in the housing markets, which has been hitting the financial industry. The financial crisis of 2007-2010 also affected in the bursting of real estate bubbles around the world, which had begun in late 1990s.

The U.S housing market consists of construction, sale and resale of all residential properties across the nation. Any collapse of the U.S. Housing Bubble has a direct impact not only on home valuations, but the nation’s mortgage markets, real estate, home supply retail outlets, home builders, large institutional investors, and foreign banks which leads to the increasing the risk of a nationwide recession.

The worse conditions in the housing market can substantially impact mortgage companies such as lenders. If demand for the residential real estate falls, then obviously prices are likely to fall as well. Also, the poor conditions in the housing market might lead to a fall in interest rates, which would make each new loan, less profitable.

Companies like Countrywide Financial (CFC), Federal National Mortgage Association (FNM), Freddie Mac (FRE), Wells Fargo (WFC), Washington Mutual (WM) and other large companies in the residential mortgage market could be negatively impacted by a housing slump as the value of their mortgage portfolios decreases. Also, their revenues are directly linked to the housing markets.

Goldman Sachs Group (GS), Merrill Lynch (MER), Morgan Stanley (MS), Lehman Brothers and other investment banks are also harmed by the cause of housing slump. Most of these companies invest in the housing market either through purchasing secondary mortgages or investing in Mortgage Back Securities (MBS). Regardless, a severe housing slump is resulting in the lowering of interest-rate would impact on financial services firms of all types.