The news regarding our current housing BUBBLE is absurd to say the least. Realtors, lenders and anyone with a stake in continuing to drive up housing prices so they can make more $$$ are falsely claiming, this is not the 2008 housing crash happening again, that was sub-prime lending and variable interest rates, you are full of s*** and here is why…
Yes, kuddos for constantly pointing out sub-prime lending is a thing of the past and sure we are all better off for it but all that means is the banks got a little more clever with our current housing bubble.
Yes, interest rates were recently at historical lows and only those with flawless credit were able to attain those loans – kuddos, BUT home prices shot up higher than ever before, far surpassing 2008 purchase prices, while realtors and lenders continued targeting un-savvy buyers and duped them into paying double, triple or even quadraple what their house is actually worth when real and fair market circumstances are considered.
If you had equity maybe through the sale of your old house, going in to your new home and mortgage, this blog post does not apply to you. If you paid all cash for your recently purchased house, this article does not apply to you. If you purchased a foreclosed home through an auction without bank financing, this does not apply to you. If you inherited a home free and clear without the need for a mortgage, this article does not apply to you. This is mostly pertaining to new home buyers without a large down payment who took out mortgages in recent years and bought a traditional style, realtor listed, home – same victims of the last housing crash.
So yes, the current real estate bubble is not due to variable interest rates suddenly kicking in making mortgage payments unaffordable, it is due to over-priced real estate that does not allow for home owners to stumble or fall because all of their earnings are going to paying their monthly mortgage payment; ie. they have no savings. Due to the exorbitant purchase price and the exorbitant amount of money they are paying every month (even with a super low interest rate) this bubble will inevitably pop.
Let me put it this way, a balloon mortgage, which I am betting is at least 80% of the mortgage loans made in the past five years, has a really, really high monthly payment coupled with a 30 year term. What this means is all of your money will go to your monthly payment for 30 years, leaving nothing left, house payments + insurance and bills and working your lives away to make ends meet are it.
The problem here is there is no savings (and/or not enough) to account for a rainy day, therefore, if you lose your job, another pandemic hits causing business to close down and a possible job loss or decrease in salary, you go through a divorce or seperation and lose half of your income or more, you decide to have a kid and your employer fails to pay for time off, you are screwed.
When this happens, the homeowner will default and depending on how large the hit and how quickly the bank moves to recover their asset, you will lose your overly priced home without even a peanut of ROI (Return on Investment) but lucky you, if you do everything the bank tells you to and are a nice little boy or girl, you can short sale your house and avoid a bad mark on your credit, so that you can inevitibly, do it all over again because god knows legislatures will never get it together and do the right thing for the people.
Even if they do, you are then relying on the mercy of your local judges and courts who are in the pockets of private attorneys who seem to do just about whatever the hell they want, regardless of the laws. Oh and then, it gets so much better, you become a RENTER again and oh boy, no one wants to join the likes of us, trust me on that one.
The other claim I have read is, well, this is not a bubble because demand for housing surpasses supply. Well, of course, that is true while we are still in the bubble. There is still a false belief that housing prices will continue to rise coupled with a lower than usual interest rate but now, I am reading for several months, mortgages are on the decline and houses are not selling therefore this myth is done and we are now headed for a downward sellers’ spiral. It won’t be long before purchase prices fall dramitically. I just feel sorry for the folks whose new neighbors paid a quarter of the price for the same house that they are struggling to make minimum payments for in addition to negative vs. positive equity.