a massive housing bubble
(no date - circa 2004) old, but informative nonetheless
At first look, housing and real estate are performing spectacularly. Since 1980, the average home is up by 185 percent. In recent years, despite the recession, housing prices have risen by over 43 percent. To put that into perspective, in last 5 years, the average house-hold net worth inflated by $75,000. In California during 2002, the average house-hold soared by $3,000 per month!
The rapidly rising housing prices are the main sign that we are in a massive housing bubble. Housing bubbles occur when housing prices overheat as they skyrocket, only to come crashing down for at least a decade to come.
What is Fueling the Housing Bubble?
This answer is the simplest: Mortgage rates are at a 40-year low. In 1982 mortgage rates were at a lofty 16 percent and have been dropping steadily to about 5 percent! When mortgage rates drop, monthly mortgage payments decrease as well. This decrease makes housing more affordable, which in turn triggers a bull market in housing prices.
Mortgage rates won’t stay low forever as this low rate environment can’t be maintained for much longer. When rates do rise, housing prices will fall as prospective home buyers will be discouraged by higher monthly mortgage payments.
A major sign that we are in a housing bubble is the fact that fewer people can afford homes. Housing prices have been rising at a vastly higher rate than incomes. Now more people are unable to afford the average home in their town. A housing bubble needs a steady stream of thirsty home buyers. If housing is significantly less affordable, then who is left to keep buying to prop up home values? No one! Overheated real estate prices are going to collapse plain and simple. This is just a real life example of supply and demand.
The Borrowing Binge
As interest rates have dropped, and housing prices soared, homeowners have found gold in home equity credit lines. These credit lines are a way for homeowners to borrow large sums of money backed by their home’s equity. Sort of like a credit card, but in the form of a house. Basically, these credit lines increase the amount of mortgage the homeowner owes.
To make matters worse, 51 percent of this borrowed money is being spent on home improvements and consumer items. Now you can see why $70,000+ luxury car market is booming!
Home equity has diminished significantly as we are consuming our free cash rather than paying off our mortgages. Simply stated, frivolous consumers are maxed out on credit. Since 1995 national mortgage debt has risen from $4 trillion to $7 trillion! In just 2002, $820 billion was borrowed! If this isn’t a sign of a housing bubble, than I don’t know what is.
The United States, as a whole, is in debt by $32 trillion, of which the majority was added in the borrowing binge of the 1990’s. The economy is so debt-ridden that we are now similar to a house of cards. It won’t take much to topple this ever inflating housing bubble.
The housing bubble will start to deflate when interest rates rise. Furthermore, even a slight downturn in our already feeble economy will cause an increase in mortgage delinquencies as consumers buckle from their debts. Of course when this happens, credit card defaults will also rise as will personal bankruptcies.
After the Housing Bubble Pops
After the housing bubble pops, prices will likely plummet for at least a decade, unfortunately. Too pessimistic? Consider this: After the 1989 Japanese housing bubble, housing prices tanked for 13 straight years! The Japanese housing bubble was a similar situation to what we are currently experiencing.
Even if the housing crash isn’t nearly as drastic, it could still take at least 9 years to recover. This is precisely what occurred after 1988 as the United States housing boom ended. National housing prices finally reached previous 1988 levels in 1997!
From what we have seen, it is inevitable that we are in a housing bubble that will end in an economic crisis. The economy always finds a way to punish excess.
http://www.stock-market-crash.net/housing-bubble.htm
(no date - circa 2004) old, but informative nonetheless
At first look, housing and real estate are performing spectacularly. Since 1980, the average home is up by 185 percent. In recent years, despite the recession, housing prices have risen by over 43 percent. To put that into perspective, in last 5 years, the average house-hold net worth inflated by $75,000. In California during 2002, the average house-hold soared by $3,000 per month!
The rapidly rising housing prices are the main sign that we are in a massive housing bubble. Housing bubbles occur when housing prices overheat as they skyrocket, only to come crashing down for at least a decade to come.
What is Fueling the Housing Bubble?
This answer is the simplest: Mortgage rates are at a 40-year low. In 1982 mortgage rates were at a lofty 16 percent and have been dropping steadily to about 5 percent! When mortgage rates drop, monthly mortgage payments decrease as well. This decrease makes housing more affordable, which in turn triggers a bull market in housing prices.
Mortgage rates won’t stay low forever as this low rate environment can’t be maintained for much longer. When rates do rise, housing prices will fall as prospective home buyers will be discouraged by higher monthly mortgage payments.
A major sign that we are in a housing bubble is the fact that fewer people can afford homes. Housing prices have been rising at a vastly higher rate than incomes. Now more people are unable to afford the average home in their town. A housing bubble needs a steady stream of thirsty home buyers. If housing is significantly less affordable, then who is left to keep buying to prop up home values? No one! Overheated real estate prices are going to collapse plain and simple. This is just a real life example of supply and demand.
The Borrowing Binge
As interest rates have dropped, and housing prices soared, homeowners have found gold in home equity credit lines. These credit lines are a way for homeowners to borrow large sums of money backed by their home’s equity. Sort of like a credit card, but in the form of a house. Basically, these credit lines increase the amount of mortgage the homeowner owes.
To make matters worse, 51 percent of this borrowed money is being spent on home improvements and consumer items. Now you can see why $70,000+ luxury car market is booming!
Home equity has diminished significantly as we are consuming our free cash rather than paying off our mortgages. Simply stated, frivolous consumers are maxed out on credit. Since 1995 national mortgage debt has risen from $4 trillion to $7 trillion! In just 2002, $820 billion was borrowed! If this isn’t a sign of a housing bubble, than I don’t know what is.
The United States, as a whole, is in debt by $32 trillion, of which the majority was added in the borrowing binge of the 1990’s. The economy is so debt-ridden that we are now similar to a house of cards. It won’t take much to topple this ever inflating housing bubble.
The housing bubble will start to deflate when interest rates rise. Furthermore, even a slight downturn in our already feeble economy will cause an increase in mortgage delinquencies as consumers buckle from their debts. Of course when this happens, credit card defaults will also rise as will personal bankruptcies.
After the Housing Bubble Pops
After the housing bubble pops, prices will likely plummet for at least a decade, unfortunately. Too pessimistic? Consider this: After the 1989 Japanese housing bubble, housing prices tanked for 13 straight years! The Japanese housing bubble was a similar situation to what we are currently experiencing.
Even if the housing crash isn’t nearly as drastic, it could still take at least 9 years to recover. This is precisely what occurred after 1988 as the United States housing boom ended. National housing prices finally reached previous 1988 levels in 1997!
From what we have seen, it is inevitable that we are in a housing bubble that will end in an economic crisis. The economy always finds a way to punish excess.
http://www.stock-market-crash.net/housing-bubble.htm
Solar Stocks #board-11148
Peak Oil #board-6609
Coal #board-2809
Real Estate Bubble #board-7285
Lender Implosion #board-10076
HomeBuilders #board-1680
Your Economy #board-1948
Global Warming #board-11877
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