28 Oct Housing Bubble 2018 – Will the Housing Market Crash in 2018?
Will the Housing Bubble Burst in 2018?
It isn’t all that long ago that the worst financial miscalculation and calamity of our era took place. 7.8 million foreclosures occurred during the 2008 housing crash and the country sunk into a severe recession.
What are the odds of a housing bubble to crash event happening and what will be the straw that breaks the camel’s back? The factors are listed below. Will you be able to get out in time? There’s a lot of people wondering about a potential crash. Which cities will be hit hardest: New York, Boston, San Francisco, Los Angeles, Seattle, Miami or Houston?
2018 might be a nervous time and relying on banking, housing or stock market experts to plan your investments might not be a a good approach. You should dig in and get educated on this yourself. Share your thoughts and opinions and you might get the feedback and insight you need.
The problem comes when the bubble bursts and losses of 30%, 40% or more pile up quickly. Investors tell themselves they’ll be smart enough to get out in time, but that’s not true.” from a post on Bubble Dynamics by Jim Rickards.
With all the political strife in the US, there’s those who might think a housing market collapse is inevitable and could launch a stock market crash. Maybe a few will take pleasure from it. Wars, government incompetence, political interference, weak banking system, and a weakening economy brought everything down in 2008.
Some experts warn the conditions also exist for a crash in 2018/2019. Is this just anti-Trump lobby fear mongering or is there a factual basis for a housing crash? They point to heated up markets like Washington DC, Dallas, New York, Seattle and Denver and talk about bubbles.
They point to Presidential impeachment, trashed trade deals, global economic slides, and high consumer debt as sure signs the housing market bubble will burst.
But hold on, the stock markets are still strong with plenty of demand for housing. Houston, Miami, Los Angeles, Seattle, Denver, New York, and Boston are still showing strength during traditional weak seasons.
So is there really a US housing bubble and a tumble as early as 2018? Or will the year of the natural disaster be followed by a unusual good year for housing?
International economies play a big role now so perhaps domestic issues might not be enough to set off a housing landslide. But let’s take a closer look at all the fundamentals below.
The Last Housing Crash
Can history be a reliable guide to the 2018 to 2020 period? Looking back at the last housing crash 10 years ago, experts blamed it on everything from easy low mortgage rates to greed, house fippers, unregulated banks and lenders, mortgage underwriters and sub prime loans.
The housing market was then strangled and shut down. Do the same conditions exist? If inflation gets out of control and governments over react with reactive monetary policy, along with OPEC driving up oil prices, and growing wars, there’s no doubt a housing market crash could happen.
And when mortgage holders believe they will owe endlessly on a worthless high priced property, they’ll begin defaulting on their mortgages. If mortgage rates jump and they aren’t locked in at a low rate, that’s a factor.
If trade wars do begin, it could kill jobs, wage levels, and investment, resulting in a slide. The economy is the number one factor. And if foreign buyers want to sell because of currency worries, prices would fall.
It’s these worries that keep property investors up at night and a lot of people from buying.
Those housing experts point to a number of things that exist now and could transpire in 2018 or 2019. So if the housing market was to burst, would that affect how much you should pay for a house? If you’re a seller, should you sell your house now?
The US Economic Bubble
The US housing market has ridden the longest economic rally in US history. Is this an economic bubble too?
There is an economic bubble. We’re in it. It’s a period of intense optimism with lots of disposable income to throw at home purchases. And places like California is where the tech industry has done so well, bidding has been most intense. Yet, it’s not completely out of control (although anyone in the Bay Area would argue) as the points below suggest.
Graphic courtesy of Zillow.com
This boom cycle has been moderated by President Trump’s inability to get anything done. His goal of bringing good paying jobs back to the US is meeting resistance because of short term transition pain, and because multinationals would rather keep those jobs in Mexico, China, and Indonesia (and wherever next). His battle continues.
If he was successful, the economy would inflate the housing bubble considerably. If the global economy suddenly sunk, the shockwave would return to the US. Foreigners who initially bought every American asset possible, would likely have to sell. Especially China who hold a lot of US debt and they own a lot of US real estate.
What happens if China calls in that debt? Interest rates would rise, layoffs would grow, mortgages would begin to default, and prices would plummet faster than they went up.
The Threat of a Housing Bubble is Real
Anyone in Dallas, Denver, Seattle, Los Angeles, San Francisco, San Jose, and even San Diego are a tad nervous about housing prices. Fortunately, those prices have moderated slightly so the chance of a California bubble bursting has diminished. With the California economy going strong, and with US dollar enjoying upward pressure things look good.
With President Trump meddling with the Free Trade agreements however, there is substantial risk of economic shockwaves.
Think About Why a Housing Bubble Might Pop
Housing statisticians might point to a statistical truth, that prices revert to their mean averages. What goes up must come down to the usual, normal levels that are supported by an economy. That’s the time when people aren’t so optimistic or pessimistic.
Makes sense, however the US is in a very optimistic period with demographics supporting more home buying, and with rising GDP, high employment rates, and an influx of foreign investment. Are we there yet? (the peak).
Is there Excessive Risk Taking in the Housing and Investment Market?
Experts say excessive risk isn’t present in the markets. They suggest few are overleveraged, financially stressed, and not threatened by increased interest rates.
Is Demand for Housing in the US exhausted?
It appears demand for housing is still strong and considerable building is taking place. However not enough housing is being built to satisfy current demand.
Is Debt a Problem?
US credit card debt is the highest in history and the US national debt is $20 Trillion. The US annual trade deficit is also in the trillions. The average US home buyers puts 5% down on a home whereas in the past it was 20%. There’s not a lot of new mortgage debt:
In 2016, new first lien mortgages topped $2 trillion for the first time since the end of the housing crisis, but mortgage originations were still 25 percent lower than their pre-recession average — from Magnify Money.
Average debt to income ratio is rising yet is way below what it was before the last housing bubble.
However, Equity is High
Homeownership is at its lowest level ever in the last 30 years. Most Americans make low wages and can’t afford to buy. And those who do own, have a lot of home equity.
Unofficial Conclusion: No Housing Bubble for the Foreseeable Future
It doesn’t look like the statistics support a housing bubble or a burst. The markets appear to be stable and those who are at risk of an economic downturn are renting and don’t hold mortgages.
We can say for sure that it is a good time for wealthy Americans and large multinational corporations. Record profits that they don’t appear to be willing to share with American workers. Without excessive demand from the working class, a housing bubble would have to happen from investors taking flight.
Perhaps the best way to prevent a housing bubble from happening and an economic catastrophy is to not allow half of Americans to participate in the housing markets. This is why the property rental market is piping hot. There may not be an end to demand for rentals.
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