Housing Crisis Eminent!
Fact or Fiction?
As we start a new year, many people are wondering what’s going to happen with the Real Estate Market. Will the bubble burst or can we keep riding the wave to housing appreciation bliss? Housing crisis eminent. Fact or Fiction?
We’ve all seen the tabloid, dooms day scenario headlines…
“Recession Looms, Housing Crisis Eminent” or “Interest Rates Rise. Real Estate Fall Out”. But, are these true or are they mere click bait titles to help stir the pot and increase website clicks? When looking at titles like this we really must dive in and look to see if there is any validity to the claims. Here is what the real experts are saying.
Steve Harney, Keeping Current Matters (KCM), explains that the housing market has been doing so well that there MUST be a decrease in appreciation for it to continue to move forward. Harney continues to explain that it is not a recession. Rather, a slowing down of the market as it progresses forward.
One main reason for this, as Harney states, the previous housing crisis was caused by people taking 100% of their equity out of their homes and using that cash to buy depreciating assets. This ultimately led to the previous housing crisis. Compared to today, the tappable equity (20% equity left in a home) has increased by 21%. Also, amount of cash out refinances has decreased by a quarter. And, with the cash people are pulling out of their homes, they are using that to start entrepreneurial endeavors such as starting new businesses as it correlates to increases in small business start-ups. Harney and KCM crew are also quoted in saying that 40% of homes currently in the United States have 50% equity in their homes.
40% of homes currently in the United States have 50% equity in their home.
– Steve Harney
What about the recent rise in interest rates?
No one can argue that there haven’t been any rises in interest rates over the last quarter. What does that actually mean for your home or the overall housing market? Many experts say this may cause a decrease in the number of homes that are bought and sold over the next few years. The Wall Street Journal predicts that their may be an economic slowdown by years 2020 to 2021 but does not state any housing crisis is lurking. Although interest rates are rising, they are still no where near the levels they were in the early 2000s and 90s.
On the contrary to the housing decline Freddie Mac projects home selling and buying transactions to increase in 2019, not decrease. Their reasoning is that the initial hike in interest rates is causing an initial sticker shock to buyers. But, these same buyers will still buy the home once looking at other options and understanding that the original home they looked at is their best option for what they want.
Yes interest rates are rising. But, expect them to level out in the near future. With much speculation about an emerging housing crisis, the true experts are not ready to stock their pantrys and hunker down for the next recession. They are merely looking at a needed slow down, ultimately helping the housing market push further than it ever has before. So, no need to stop sipping your mimosas or flipping through Zillow. The housing market will be just fine.