All About the Bank Bail Out – Part 3 By Michael Sterios At Isnare.com Ezine Articles

Banks and other financial institution were not the only entities to suffer from the credit crunch. As borrowed funds became more difficult for other large and small businesses to obtain, the suffering spread. Almost every business in the world relies on at least one form of credit to survive – whether it be credit to purchase inventory or a working capital account – but the level of credit available to businesses shrunk drastically over a short span of time.

The result was that businesses which otherwise were profitable and were trading well were going to the wall solely because they could not raise the appropriate credit to continue operating. Companies as small as a local shop and as large as the bug three automakers in the United States were all of a sudden in serious trouble. As banks were unable to lend them the money they required to continue their business as usual, they began to declare bankruptcy at record rates.

While it may seem unfair, this chaos was effectively caused by the sub-prime mortgage crisis. As it was mortgages that ruined the lenders’ abilities to lend money in any capacity it can be concluded that all the drama in the humble home loan market had a knock on effect of causing major problems in seemingly unrelated industries all over the world. The banks’ willingness to issue mortgages to borrowers that were unable to replay certainly had far reaching effects.

In addition to having an effect on unrelated industries, the sub-prime mortgage crisis also affected industries related to it. This includes the real estate and property development industries.

As the credit crunch began to make headlines in late 2007 the composition of high streets underwent dramatic changes. Real estate agencies began to close at a rapid rate as fewer homes were offered up for sale. The real estate industry was booming before the credit crunch and had spent several years growing at a record rate. Property prices seemed to increase exponentially each year and estate agents were reaping the rewards. However within months of the reality of the credit crunch setting in to the economy, estate agents were shutting up shop at an alarming rate. Now, almost two years on, high streets are littered with vacant shops from where real estate agents once operated.

Similarly, property developers felt the brunt of the mortgage crisis almost immediately. Developments that had properties selling like hot cakes were suddenly unable to shift finished plots and suffered heavily. The same developers were also hit with the problem that finance companies were unwilling to lend them the money they required to complete construction on their developments. This one-two-punch sent many property developers to the wall and created virtual ghost towns of half finished properties. Plans for future developments were put on the crap heap as the entire industry was forced to rationalise their resources almost over night.

With the new build property market in decline the focus then turned to resale properties. As the average price of residential property declines fewer people were willing to put their home on the market for sale. As we have already seen, this greatly affected estate agents, many of which who subsequently went out of business. But more importantly the decline of the resale property market has meant that people have put their lives on hold in order to stay in their homes and save themselves from losing money by selling up and moving house.

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