Trending Now :

Re-Drafting the 2023 IPO Class The Interest-Free Installments Economy FICO Scoring Models: Explained Fed Holds Off on Rate Hike Rise of the Global Middle Class: Opportunities and Challenges Protect Yourself from Financial Scams Money Motivators Mortgage Rate Buydown What Does the Hot Inflation Report Mean for the Housing Market How Do You Build Wealth: Invest in Yourself Times Up for Programmed Money Biggest Financial Crimes: Countrywide Quantitative Tightening, Inflation, & More The Stock Market Is On Sale Investors Need to Netflix and Chill Credit Card Fixed-Interest Loans: Explained Are You Money Smart? Build Your Credit for Free Filing Your Taxes in 2022 Credit Cards that Offer 2% Cashback on All Purchases Navient Ordered to Cancel Student Loans U.S. Mortgage Interest Rates Soaring Two Big Banks Cut Overdraft Fees 2022 IPO DRAFT CLASS: Ranking the Top 10 Prospects Re-Drafting the 2021 IPO Draft All You Need to Know about Buy Now Pay Later companies Credit Card Sign-Up Bonus or SUB The Best Credit Card for the Middle-Class Make An All-cash Offer with No Cash Capitalism Always Ignores Politics All You Need to Know about the Financial crisis of 2007-2008 American Families Face Serious Rent Burden Savings Is An Expense You Can’t Build Generational Wealth If You Are Broke IT’S OFFICIAL: Robinhood is a Meme Stock All You Need to Know About Biden Mortgage Modifications & Payment Reductions Apple Card 2nd Year Anniversary: Should You Get It Now Wells Fargo to Pull Customers Personal Lines of Credit The Rise of Individual Investors The US Housing Market Is Booming. Is a Crash Ahead? Financial Literacy: How to Be Smart with Your Money Non-Fungible Token (NFT):EXPLAINED SKYROCKETED CEO PAY & LONG LINES AT FOOD BANKS Amazon Workers Want to Unionize Another Major City Piloted Universal Basic Income The New Bubble: SPACs SUBMIT YOUR PPP ROUND 2 APPLICATION BEFORE MARCH 31ST Robinhood-GameStop Hearing & Payment for Order Flow Guess Who’s Coming to Main Street Democratic Senators Say No to $15 Minimum Wage BEZOS OUT! President Biden Most Impressive Act Went Unnoticed: CFPB Biden $1.9 Trillion Stimulus Package 2021 IPO DRAFT CLASS: Ranking the Top 10 Prospects $25 Billion Emergency Rental Assistance NO, TESLA IS NOT WORTH MORE THAN TOYOTA, VOLKSWAGEN, HYUNDAI, GM, AND FORD PUT TOGETHER AMAZON TO HAND OUT ITS WORKERS $300 HOLIDAY BONUS Where Does the American Middle-class stand on Student Debt Relief? Joe Biden’s Economic Plan Explained 4 TYPES OF BAD CREDIT REPORTS AND HOW TO FIX THEM What Is the Proper Approach to Not Buy Too Much House? FISCAL STIMULUS PLANS STILL IN ACTION How to Pick Investments for Your 401(k) 10 Simple Ways to Manage Your Money Better All You Need to Know about Reverse Mortgage All You Need to Know about Wholesale Real Estate Credit card Teaser Rates AVERAGE CREDIT CARD INTEREST RATE SURGES TO 20.5 Percent Trump Signs 4 Executive Orders for Coronavirus Economic Relief The Worst American Economy in History WHY CREDIT CARDS MINIMUM PAYMENTS ARE SO LOW? 10 BIGGEST COMPANIES IN AMERICA AND WHO OWNS THEM White House Wants to End the Extra $600-A-Week Unemployment  10 Countries That Penalize Savers FEWER CREDIT CARD BALANCE-TRANSFER OFFERS ARE IN YOUR MAILBOX Private Payrolls and the Unemployment Rate SHOULD YOU BUY INTO THE HOUSING MARKET RESILIENCY? WILL WE GET A SECOND STIMULUS CHECK The Child Tax Credit and Earned Income Tax Credit THE RETURN OF BUSINESS CYCLES Should You Request a Participant Loan or an Early 401(k) Withdrawal? Homebuyers Should Not Worry about Strict Mortgage Borrowing Standards The Potential Unintended Consequences of Mortgage Forbearance All Business Owners Need to Know about the Paycheck Protection Program 10 MILLION UNEMPLOYMENT CLAIMS IN TWO WEEKS HOW WILL THE GLOBAL MIDDLE-CLASS RECOVER FROM A SECOND ECONOMIC RECESSION IN A DECADE? WILL U.S. CONSUMERS CONTINUE TO SPEND? HOW’S YOUR 401(k) PRESIDENT TRUMP SIGNS $2.2 TRILLION CORONAVIRUS STIMULUS BILL MIDDLE-CLASS NIGHTMARE: MORE THAN 3.3 AMERICAN FILED FOR UNEMPLOYMENT CLAIMS IN THE US LAST WEEK. LAWMAKERS AGREED ON $2 TRILLION CORONAVIRUS STIMULUS DEAL CORONAVIRUS STIMULUS PACKAGE FAILED AGAIN IN THE SENATE APRIL 15 (TAX DAY) DELAYED DEMOCRATS AND REPUBLICANS DIFFER ON HOW $2 TRILLION OF YOUR TAX MONEY SHOULD BE SPENT YOU CAN DELAY MORTGAGE PAYMENTS UP TO 1 YEAR, BUT SHOULD YOU? 110 Million American Consumers Could See Their Credit Scores Change The Middle-Class Needs to Support Elizabeth Warren’s Bankruptcy Plan The SECURE Act & Stretch IRA: 5 Key Retirement Changes 5 Best Blue-chip Dividend Stocks for 2020 9 Common Bankruptcy Myths 401(K) BLUNDERS TO AVOID Government Policies Built and Destroyed America’s Middle-Class & JCPenney Elijah E. Cummings, Esteemed Democrat Who Led the Impeachment Inquiry into Trump, Dies at 68 12 Candidates One-stage: Who Championed Middle-Class Policies the Most WeWork: From Roadshow to Bankruptcy Stand with the United Auto Workers Formal impeachment Inquiry into President Donald Trump America Is Still a Middle-Class Country SAUDI OIL ATTACKS: All YOU NEED TO KNOW THE FEDERAL RESERVE ABOLISHED BUSINESS CYCLES AUTO WORKERS GO ON STRIKE Saudi Attacks Send Oil Prices Spiraling REMEMBERING 9/11 What to Expect from the 116th Congress after Their August Recess Should You Accept the Pain of Trump’s Trade War? 45th G7 Summit-President Macron Leads Summit No More Upper-Class Tax Cuts Mr. President! APPLE CARD IS HERE-SHOULD YOU APPLY? THE GIG ECONOMY CREATES A PERMANENT UNDERCLASS 5 REASONS IT’S SO HARD FOR LOW-INCOME INDIVIDUALS TO MOVE UP TO THE MIDDLE CLASS ARE YOU PART OF THE MIDDLE CLASS? USE THIS CALCULATOR TO FIND OUT? WELLS FARGO IS A DANGER TO THE MIDDLE CLASS The Financialization of Everything Is Killing the Middle Class
US Housing Market
American Middle Class

The US Housing Market Is Booming. Is a Crash Ahead?

The estimated reading time for this post is 313 seconds

Currently, the number of US home sales is on the rise, and nervous house buyers and sellers wonder if the real estate market will crash anytime soon. According to Google, one of the top-notch search engines globally, American search results relating to the possible crash of the housing market increased by 2450% in April 2021. Also, other real estate search queries such as “sell my house” have significantly increased.

This increased concern among market watchers is highly warranted. The average price of an American house increased by approximately 16% in the first two months of 2021. It may not seem like an enormous increase, but considering a 3-5% annual increase is typically regarded standard, this 16% surge is worrying.

Nearly all US Housing Market stakeholders are wondering if this price upsurge will last and for how long. The answer to this query will likely depend on your area of residence and how the ongoing pandemic affects buyer priorities. Additionally, two housing market trends may also influence this outcome. Tight inventory and increased mortgage rates in some areas will also likely contribute to the high demand for housing for the rest of the year.

To better understand if the current US Housing Market is in a bubble, here is a comprehensive look at the last US housing bubble and subsequent market crash in 2008.

The US housing bubble: A trip down memory lane

A housing bubble refers to a collective increase in home prices driven by speculation, rampant spending, and demands until the market collapses. This process typically begins with an increased demand for housing units while the supply is low.

Afterward, market speculators flood the housing sector with funds, further increasing the demand. When the home prices stagnate or demand drops while the house supply rate rises, a sudden sharp decrease in prices occurs, and the housing bubble bursts.

The last housing bubble in the USA started in the mid-2000s preceding the great recession. This notorious housing bubble occurred mainly due to a technology bubble in the late 1990s. During the late 1990s, numerous tech firms took advantage of the dot-com era and exorbitantly priced their stocks in the American financial market.

Unscrupulous speculators started to bid on new tech firms that didn’t have any meaningful revenue and increasing their stock demand leading to a technology bubble. However, by the early 2000s, most of these technology firm stocks fell drastically, and many investors exited the financial market.

During this massive financial exodus, many investors decided to migrate to the real estate sector. Additionally, the US Federal Reserve decided to reduce national interest rates to help cushion individuals against the adverse effects of the technology bust.

This sudden increase in cash, credit, and governmental policies encouraging homeownership helped develop a boom in the real estate sector. With time, the liquidity of houses increased tremendously, leading to a net increase in home prices and the number of willing buyers and sellers.

By 2005-2006, the real estate business mania reached an all-time high, and the housing market started experiencing tight inventory. When this trend increased, interest rates dropped, and financial institutions introduced more conventional loan requirements, further flooding the real estate market with money.

During this period, approximately 20% of mortgage loans went to individuals who didn’t meet the standard lending requirements. Such individuals are known as subprime borrowers. About 75% of all subprime borrowers received adjustable-rate mortgages, which typically undergo an interest recalculation after a particular period.

As financial institutions lowered lending requirements, there was a general lax in checking for credit-worthy borrowers. This lax occurred because the US government widely promoted homeownership through its policies that promoted borrowing without adequately regulating it.

Between 2000 and 2007, the average home pricing within the US Housing Market drastically rose by 55%. This real estate frenzy peaked when speculators began flipping homes after only several weeks of ownership, all in a bid to earn a quick profit.

During this period, the financial stocks market recovered from the technology-related bust, and prices slowly increased and stabilized. As this recovery occurred, the government slowly increased interest rates back to normal through the US Federal Reserve.

As interest rates increased, subprime borrowers found it hard to repay their adjustable-rate mortgages, and many opted to sell their real estate assets at throwaway prices. Investors began to realize the high-risk premium within the US Housing Market and stopped investing.

As the supply for homes increased, prices started to plummet, initiating a widespread sale-off in mortgage-related assets and securities. The US housing bubble busted, and home prices decreased by 19% between 2007 and 2009. This housing bust led to mass mortgage defaults, particularly in financial institutions that didn’t have credit-worthy borrowers.

Is the Current US Housing Market in a bubble? And is a crash ahead?

The short answer is No. Although the current rise in home pricing may seem like a bubble, this effect is widely due to pandemic-driven forces. Unlike the previous housing crisis, the current average fixed mortgage rate is relatively low and affordable. Taking up such a conventional loan provides you with a fixed interest rate for the next 30 or so years which you can effortlessly repay despite ongoing house price fluctuations.

Additionally, modern mortgage lenders depend mainly on strict underwriting terms and guidelines that help avoid reckless lending, as seen in the past. The current housing boom is dependent on mortgage interest rates.

A sudden rise in American mortgage rates can lower demand and abruptly shift the market prices. However, many real estate experts predict that mortgage rates will likely increase to 3.75 by the end of 2021. If US mortgage rates continue to climb steadily, real estate prices will possibly decrease in response.

Current demographics in the USA are also promoting a sustainable housing boom. More millennials are purchasing homes that they permanently use as a residence, particularly now that they work from home.

Conclusion:

The US Housing Market is currently booming, and many market actors are wondering if it’s in a bubble and if it will crash soon. According to experts, the current house price increase doesn’t meet the threshold of becoming a housing bubble. Numerous preventative actions are already in motion. Homebuilding projects are also underway to help with the housing supply, and this means that the housing market won’t crash any time soon. 

BACK TO TOP
Continue Reading
Click to comment

Leave Comment

Advertisement
Stock News / Jan 02, 2024

Re-Drafting the 2023 IPO Class

The estimated reading time for this post is 147 seconds The Initial Public Offering (IPO)...

Stock News / Dec 29, 2023

2024 IPO Draft Class

The estimated reading time for this post is 151 seconds 2024 IPO Draft Class: Ranking...

Stock News / Dec 22, 2023

Build Wealth with Boring Investments

The estimated reading time for this post is 314 seconds Due to their boredom, long-term,...