Is There Another Housing Bubble on Its Way?


housing bubble

What are the signs of an incoming housing bubble?

Back in 2006, the American economy was shaken by a major housing bubble. It took several years for the housing market to settle down, but economists are warning that we might have another housing bubble in our near future. What could this mean not only for prospective home buyers, but for mortgage lenders and those that need them? Well, let’s take a look.

What are the signs of a possible housing bubble?

The telltale signs of a housing bubble on the rise is an inflation in home prices. However, there’s more to it than that. You must consider the pricing rises according to the neighborhood and the local economy of that location. For example, a housing price boom in New York is not necessarily concerning because Manhattan is a huge center for commerce. As prices for housing go up, the local community will theoretically rise with it and no bubble will occur. When prices rise out of control in an area with a weaker economy, then there may be cause for concern, as the locals will not be able to grow with their housing market. This alone will not create a housing bubble. This will happen when the inequality is widespread, but even with all of this to consider, it’s very difficult to spot except in hindsight.

How does this affect mortgages?

Remember that low-quality, subprime mortgages were cited as one of the causes of the housing bubble back in 2006. As homes become more and more expensive, buyers turn to lenders to help them finance their purchases. When the bubble popped, housing prices were left at all-time lows, thousands of mortgages turned delinquent, and banks were looking at major losses. This type of crisis can be avoided in several ways, but the number one thing to keep in mind is to be cautious about borrowing. You cannot borrow more than you know you’re going to be able to pay back. Accidents and oversights happen, but there is a clear difference in borrowing above your means and a unforeseen problem.

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This entry was posted on Friday, October 28th, 2016 at 12:38 pm. Both comments and pings are currently closed.

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