Is the
Housing Bubble Going to Go Boom!?
In
recent years, real estate prices have skyrocketed out of control;
extravagantly so in some markets such as Broward County, Florida, San Diego,
California, and the San Francisco Bay area. Experts are divided on rather or
not the housing bubble is going to burst and cause real estate prices to
plummet and foreclosures to run rampant.
Some
experts believe that prices may finally level off, but not decline. However,
due to several reasons, other financial and real estate experts believe that
real estate, particularly in some key areas, are going to crash and crash
hard. There are several factors involved that fuel this theory:
Rising Interest Rates - Interest rates have been at historical lows,
allowing more and more buyers to qualify for homes that they could not have
afforded otherwise. On the other hand, because rates have been so low, and
buyers have been able to qualify for more money, sellers have been able to
benefit by being able to sell their houses for more. I believe that once the
interest rate starts to climb back up around 8 - 10% or higher, we are going
to see a natural decline in housing costs. Buyers simply will not be able to
pay what they once were.
Interest-Only Loans Converting - Banks and builders have been making it
easier and more convenient for buyers to get into homes, often bigger and more
expensive homes than they could really afford, by offering 0% down loans and
interest-only payments for the first 3 -5 years. That has been great to get
people inside the homes, however, financial realities are setting in now that
those interest-only loans are converting and the borrowers are feeling the
full brunt of their burdens. Payments are suddenly increasing by up to 50% and
people are scrambling to keep their homes from being foreclosed on. As more
and more of these homes continue to come back on the market, people are going
to realize that they can't afford the big, luxurious homes and we are going to
see a decline in real estate values.
Financial Pressures Building - Again, as I've said above, people are
realizing that they can't afford the 'New American Dream' of having a spacious
5000 sq. foot home with a pool and four car garage. Reality is starting to set
in with many people and they are coming to understand that maybe they have
bitten off more than they can chew and are attempting to downsize their
lifestyle. People are now trying to unload their oversized homes and moving
into more reasonable priced, and sized, homes that better fit their economy in
order to free up more money for family time and a better quality of life.
Real Estate 'Speculators' Facing Reality - Television has helped to fuel
the drive for more average people to get into home remodeling and renovation.
Do-it-yourselfers have been snatching up investment properties left and right,
often driving up prices in the process. Fixer-uppers are often fetching as
much as turn-keys, so sellers have been able to jack up prices all around.
Once buyers start balking at these inflated prices we will begin to see some
of these 'investors' go out of business and see these homes back on the
foreclosure market.
