One Big Risk In US Real Estate Now

Q: Where is the biggest risk in US real estate now? Craig, Greenbelt, MD

A: The lending market has shifted dramatically over the past few years from domination by big banks to domination by non-banks, financial institutions that only make loans and do not offer deposit accounts. In some ways non-banks are more nimble and can offer more loan products than big banks—housing prices and the housing market would be significantly less dynamic without these non-traditional lenders.

In 2011, 50% of all new mortgage money was loaned by the three biggest banks in the United States, by 2016, the share of loans originated by the three biggest banks had dropped to about 20%.

The additional systemic risk lies in the fact that non-banks don’t have to be as well capitalized as traditional banks, which could mean that taxpayers may be more exposed than in the global financial crisis of 2008-9 if there are lots of mortgage defaults in the future. Thanks for your question, Craig.

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