The Housing Bubble of 2016, & What You Need to Know

Nearly ten years ago the U.S. housing market was on top of a giant bubble. Too many eager buyers were willing to pay more than the asking price for even more houses. Another reason was due to the government forcing the banks to lend to nearly everyone, even the people who couldn’t afford it. When that happens the bubble will bust, leaving millions who lost savings, properties, and their home.

In 2012 home prices fell to their bottom after six long years of free fall. The market today has homes one point shy of the 2006 bubble peak.

June was the 50th straight month of home price appreciation with prices up 33% since 2012. The Black Knight Financial firm gave those statistics. It measured the average national home price in June at $265,000, which happens to be 1.1% shy of the record high.

What’s different about today is these prices aren’t being driven by flakey mortgages. What is driving them is the lack of homes accompanied by record low mortgage rates. The median household income to afford a median household is at 21%, which is quite strong. It was around 36% during the bubble years.

What’s so bad about that? Well it starts to get worrisome when the rates rise again, pushing prospective buyers out of affordability and dropping home prices. Even though rates are low, a good number of buyers still cannot qualify for mortgages, and or afford a down payment and when the prices rise, the down payment follows.

The problem with today is that there’s a segment of people who cannot qualify to buy a home, and a segment just as sizable that has seen nothing but depressing reports of the real estate market for the past five years, and they’re weary to buy tarnished assets.                            

 The second reason for this sharpening of home prices is the little supply.  Home builders were hurt horribly in the last crash and have been hesitant to return. Without this industry there are no new homes for the ever increasing amount of people.

A more subtly factor driving home prices is home equity. Homeowners seemed to have doubled down, and have put more skin in the game as compared to the last bubble. Last time they had around 25%, while today it’s about 44%. Prices may fall and homeowners could still be in the black.

Also, rentals are a popular source of income for investors and homeowners. This part of the market is serving many single-family homes, and mostly renting by millennials. Many of these millennials are priced out of buying because rent is too damn high, keeping them from saving for a down payment; so they turn to renting single-family homes.

All these things considered, accompanied by the unique situation of today, the market is continuing to put the pressure to rise prices even more. Out of the countries forty largest cities, 14 have seen record prices. To name a couple of these cities let’s begin with Dallas, Austin, Boston, Denver, Pittsburgh, Seattle, and more. The only city to see a drop was St. Louis.

Only time will tell what is to happen during this bubble. The election will surely have an effect on it one way or another. It will be interesting to see! 

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