The Truth About the Housing Bubble
The Federal Reserve recently raised interest rates, and reasonably, many people are worried about the future of the US economy.
When we hear about a housing bubble, we automatically reflect on 2008. It was horrible. The amount of foreclosures and delinquencies was astronomical. Our country entered a deep recession.
The bad news is: we are in a housing bubble again. But don’t panic; this situation is not as dire as 2008. In 2008, the prices were driven by artificial mortgage prices, and borrowers were unable to pay their loans because they either lost their jobs, or they never should have qualified for the loan in the first place.
This time around, conditions are much less threatening. Prices aren’t being driven up by a faulty mortgage system. It’s more of a lack of supply that is affecting prices, which is much less scary.
Home construction is not as rapid as we saw before 2008. In fact, it’s actually slowed down; construction is at a low point. Builders aren’t constructing small single-family homes, because the market has changed. Millennials aren’t buying homes, and it has changed the game! Here’s why that’s a good thing for real estate investors.
You shouldn’t be scared about the market: since construction has slowed on small single-family homes, there’s a greater opportunity for people to rent…from real estate investors! And with fewer homes on the market, the vacancy rates are lower.
Also, since interest rates are up, people are more hesitant to buy a house. They consider waiting a few years, which can cause the bubble to burst. This is actually rooted in sound economics! Perhaps if you can’t afford to buy a home, you shouldn’t. In 2008, people couldn’t afford their homes, but somehow the banks allowed it.
Don’t be afraid of the bubble! People still need to rent. Why shouldn’t they rent from you? As long as you’re purchasing in the right markets, your investments will be safe.