Another Real Estate Bubble Around the Corner
When you ask is there another real estate bubble around the corner, you will get two different answers. The answer from one will be No. The economy is steadily improving. You can see that from the unemployment statistics. The unemployment rate us down to 5.2%. There is very little inflation and that means that interest rates are low. In fact mortgage rates haven’t budged in over a year. Housing prices have recovered almost all of the losses since 2007-2008 in most major cities. Auto sales are robust. The dollar is strong versus the major currencies. The Euro has fallen almost to par against the dollar. The stock market is not far from record highs. To top it off, the President thinks he has done a darn good job, and brags if he could run again, he would get re-elected and many agree with him.
Another group of people question the strength of the economy and many think we are in another real estate bubble and a crash is just around the corner. What do they see?
They say that the unemployment is down the way it is calculated, but it doesn’t count as unemployed those 92,000,000 people who can’t find a job, have given up looking for a job, or are working part-time when they would like a full time job. They think that an economy with 43,000,000 people on food stamps is not a sign of a healthy economy. They point out that middle-incomes have been flat, adjusted for inflation, for almost twenty years. Yes, they say, the economy is improving, but at the slowest rate of any recovery from recession.
Many of the opinions about the economy and housing depend on your income and the city in which you live. A lot of money has come into the big cities from big investors and foreign investors, such as China, buying up depressed houses. In Detroit, for example the Chinese buy up 100 to 200 houses in one fell swoop. Flippers, too, are active because money is available at very low rates and there is a ready market for renovated homes.
However, a look at Atlanta, shows that according to Zillow, the median sale price of an existing home is now at $256,485 up from the peak in 2007 of $225,000. It is much more expensive to afford today’s house. Using the prevailing method, in 2007, most new homeowners were buying houses with adjustable ARMs. Today, the prevailing method is a 30-year mortgage and the monthly mortgage payment is at least 50% higher than in 2007.
With flat incomes and rising housing prices, there seems to be a limit to what people can afford. Couple that with rising rents that are approaching 50% of incomes and you may have many people priced out of the housing market.
Finally, there is anecdotal evidence that some markets have entered a speculative phase. Denver is experiencing heightened demand for homes under $300,000 that has led to offers of $10,000 to $30,000 over asking prices.
In truth, I don’t know if anyone knows if there another real estate bubble around the corner. When I read recently of a young couple buying a $759,000 house using a $625,000 mortgage with a mortgage payment of $5,500 per month, I shook my head. I would hate to obligate myself to that payment for 30 years.
Val Buys Houses LLC is here to help homeowners out of any kind of distressed situation. As investors, we are in business to make a modest profit on any deal, however we can help homeowners out of just about any situation, no matter what! There are no fees, upfront costs, commissions, or anything else. Just the simple honest truth about your home and how we can help you sell it fast to resolve any situation.
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