OUR CURRENT HOUSING BUBBLE

Unsurprisingly, the United States is in the midst of another housing bubble. A housing bubble occurs when there is a low supply of residential properties available coupled with an extremely high demand. Factors such as historically low interest rates, credit options and an increase in mortgage plan opportunities, all have contributed to our current housing bubble.

The only issue is……. most housing bubbles burst.

If our current economic situation in the United States continues to move south, interest rates on mortgages will likely rise, thus leading to the inevitable decrease in demand for homes. According to the International Monetary Fund (IMF), housing bubbles can last a really long time, but are always temporary.

When that bubble bursts though, it’s a tragic event. A sharp decline in value will affect the homes of millions of Americans. Real estate investors will suffer tremendous losses due to excessive demands and low inventory. That may sound counter-intuitive, but when the law of supply and demand balances in this particular way, the increase in prices is inevitably what causes the housing bubble to pop.

The loss is suffered across the board. Homeowners, investors and lenders will all be affected once the housing bubble bursts. A few indicators that the housing bubble is close to bursting:

• Decline in the economy. That’s obvious. A decline in the economy creates a domino effect where a loss of jobs equals a loss of income. A loss of income makes it much more difficult for a homeowner to pay his mortgage. Thus, a recession is born.
• Interest rates begin to increase dramatically making it harder for people to purchase a home.
• The high interest rates then naturally influence the laws of supply and demand- wearying demand and increasing supply.

Given the current factors, it is very likely that our current housing bubble will soon burst.

Topic: Real Estate, Investment, Real Estate Market

Source: Barry Nielsen, https://www.investopedia.com/articles/07/housing_bubble.asp