Three of the top 9 reasons why the real estate bubble is about to in full-swing are listed below.
If you have real estate or are thinking of buying real estate, you should pay attentionto this because it could be the most important announcement you receive this year regarding real estate and your financial goals.
Over the last five years, the real estate market has seen an explosive increase. Because of this, many believe that real estate is the most secure investment. But this isn't the case anymore. As inflation is adjusted, the dramatic rise in the cost of real estate has caused the real estate market to reach unprecedented levels. There are fewer real estate buyers because of the growing concern about the real estate bubble. With fewer buyers, prices are coming down.
Federal Reserve Board Governor Susan Blies stated, on May 4 in 2006that "Housing is really peaked". This statement comes on the heels Ben Bernanke, the Fed Chairman, saying that he was concerned by the "softening of the real estate markets. The real estate market was described by Alan Greenspan, former Fed Chairman, as "frothy." All these financial experts agree that the market is in a decline, and there is an urgent need to find the reason.
Three of the top nine reasons why the real property bubble is about to explode are:
1. Inflation has risen 72%, while the interest rates increase
2. First-time homeowners are priced out the market. The real estate market is a pyramid. The base is falling away
3. The market's psychological outlook has changed to the extent that people are afraid of inflation of the bubble - the craze for real estate is over!
The primary reason why the real estate bubble is bursting is the rise in interest rates. From June 2003 through June 2004, interest rates were at an all-time low during Alan Greenspan. These low rates enabled homeowners to purchase houses that were costlier then what they could normally afford but at the same monthly cost, essentially creating "free cash". The days of low interest rates have come to an end. The interest rates have been increasing and will continue to increase. To combat inflation, interest rates must be raised due to rising food and fuel costs. A higher rate of interest makes owning homes more expensive, thus driving existing home values to a low.
Adjustable mortgages (ARMs) that are subject to higher interest rates can also be affected. For the first two-three years, adjustable mortgages provide extremely low interest rates as well as a affordable monthly payments. But after that, the interest rate is low and the monthly mortgage payments rises. In the first quarter 2006 were 72% more than 2005 , due to the adjustment of mortgage rate changes.
The foreclosure problem is likely to worsen as the interest rate continues to rise and more adjustable mortgage payments are adjusted to a greater interest rate and higher mortgage payments. Moody's declared that 25% of mortgages that are due to be paid off are scheduled for interest rate resets during 2006 and 2007. The figure is around $2 trillion in U.S. mortgage debt. It'll be a strain on your finances if monthly installments increase. One of the country's most trusted title insurance companies found that nearly 1.4 million households could experience an increase of 50% in their monthly payment after the initial payment period expires.
Another reason behind the real property bubble burst is because homebuyers no longer have the opportunity to buy homes because of higher costs and increased interest rates. The market for real estate is in essence the result of a pyramid scheme. As long the number of buyers increases, everything is good. First-time home buyers at the lower portion of the pyramid, buy houses. The funds used to purchase a $100,000.00 home is then transferred up the ladder to become the seller and buyer of the $1,000,000.00 property. Some people sell their homes and go on to purchase a larger home. A rise in real estate prices coupled with the higher interest rates have forced many potential buyers out. In the present, we are beginning to observe the negative impacts of this double-edged weapon on the general real estate market. The decline in sales is partially offset by an increase in the number of homes available for sale. The most recent report on the market for housing reported that sales of new homes fell 10.5 percent in February. This is the ninth-largest one-month decrease in the last nine years.
The mindset of the real estate market has changed. This is the third reason for why the bubble in real estate has burst. Over the last five year, the real estate market has seen an explosive rise and you can make a lot of money if you invest in real estate. This high return for many investors helped propel the market higher as more people noticed this, and decided to also invest in real estate prior to when they 'missed out'.
The psychology that drives any market that is a bubble, whether real estate or the stock markets, is known as "herd mentality". It is the belief that everyone follows the herd. This herd mentality is the core of every bubble. It has been observed many times before, including the US stock market bubble of the late 1990's as well as Japan's real-estate bubble in the 1980's, as well as the US railroad bubble of the 1870's. The herd mentality was completely dominant in the real estate sector until recently.
The price of the bubble will rise until there's the "greater fool", willing to purchase at a greater price. The mania will fade as there are fewer "greater fools" capable of or willing to buy homes. Prices drop when the panic subsides because of the oversupply of inventory that was created during boom times. This is the case for all three historical bubbles mentioned earlier and many other historical examples. It is important to keep in mind that the US went into recession after all three of the historical bubbles burst.
The speculators and investors are worried that losing funds on real estate could result from the shift in their mindset. They're not purchasing less real estate, but also selling investments. They are also causing a flood of new homes being constructed which has led to an enormous amount of houses to be put up for sale. These two increasing supply forces, the increasing supply of existing homes to sell, coupled with the rising https://www.joesuryan.com/ number of new homes available for sale could further increase the difficulty and will drive real estate prices down.
Recent surveys found that 71 percent of respondents believe the real estate bubble will burst by April 2007. This is the reason why the real estate boom is ending.
The effects of the bursting of the bubble will trigger massive aftershocks that will impact the world economy significantly. George Soros, a billionaire investor, has declared that the US will enter recession in 2007. I agree with him. I think we will be in a recession because as the bubble in real estate explodes and jobs disappear, Americans will no longer be able to cash out money from their homes, and the entire economy will begin to slow dramatically, leading to recession.
The three reasons the real estate bubble is in the process of bursting are the higher interest rates; first-time buyers getting priced out of the market; and the perception of the real estate market is shifting. The eBook, "How to prosper in a changing real estate market" was published recently. These items can be protected from the market's bubble by clicking here.