Are We in a Housing Bubble? #isthehousingmarketgoingtocrash

Is the housing market going to crash because we're in a housing bubble? To answer this question, let's look at mortgage rates, mortgage foreclosures, lending standards and housing supply and demand for real estate.

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If you’re old enough to remember the great recession in 2008 and 2009, you may think that history is doomed to repeat itself. And for some would be investors, you may be waiting for the bottom to fall out again so you can swoop up some awesome deals on flips and investment property – I mean just look what’s happened in the last 10 years.

But you have to remember that the housing recession of the late 2000s was so traumatizing because other than the Great recession, it’s never happened before! It was unprecedented.

One of the major reasons that lead to the housing crash was the sub prime loans that were being written and the subsequent fraud, ability to repay, and the foreclosures that followed.

Now fast forward to 2012 and up to now – one of the biggest reasons that would not support the case for a housing crash is our lending standards. After the crash lending was so tight you could barely get a loan to buy a house, all the banks were actually scared to lend. That loosened up in 2012 with clear standards and new rules to make sure people were actually qualified to pay their loans back.

The other major factor supporting housing prices is rates. We just had the lowest mortgage rates ever seen in history last year after COVID and we continue to see low rates today. Since the 1980s rate’s have been going down year after year. If you didn’t know this, now you do...rates and housing prices are inverse – so when rates go down prices will go up, and visa versa, if we started seeing rate go up, you’d theoretically see home prices come down.

But the since the great recession and certainly since COVID started in 2020 the federal reserve has been and continues to be dedicated to keeping rates low. Jerome Powell even said he didn’t expect the fed to raise rates until 2023.

First the demand – there is huge demand out there from Gen X, millennials and now gen Z – all of which have seen exactly how to build wealth through real estate and want a piece of the American dream for themselves. It isn’t uncommon for even an overpriced home in what used to be an undesirable area to get 20 offers over asking price, just hours after it’s put on the market. That is strong demand.

Now the supply, we are at record low supply in all markets across the country. People are living in their homes longer, investment banks bought up homes by the thousands from Fannie and Freddie after the last crash and are now the biggest landlords in the county. They bought those homes for pennies on the dollar, now they’re worth more than ever and they’re renting them out for top dollar – why would they sell?

Now let’s talk about foreclosures – back in the late 2000 all these foreclosures came on the market, no one wanted them or could buy them, so they became super cheap further depressing prices. There were approximately 2.8 million foreclosures in 2009. Last year in 2020 there were approximately 27,000. People aren’t walking away from all the equity they’ve build in the last 10 years and because of OCIVD there’s a moratorium banning evictions and foreclosures for the time being.

Interest rates, lending standards, supply and demand and foreclosures are the same factors that could have the opposite affect; the economy and inflation could pick up and the fed could raise rates. As I mentioned, when rates go up, prices come down. This is a big factor and a big risk to housing prices – however, a moderate increase in rates over time will not cause a housing crash

Demand – houses are becoming more expensive and at some point they will be unaffordable for some which will drive down demand and therefore prices. This could happen over time as well, but it won’t cause any short term crash. But could cause a slow decline in prices in the years to come.

Supply could reverse, material costs could come down, labor shortages could ease, land costs could come down which would allow us to build more and less expensive homes. I think this would be great for all of us looking for homes to buy and again could drive prices lower over time.

Видео Are We in a Housing Bubble? #isthehousingmarketgoingtocrash канала Chris O'Connell