The U.S. economy is going strong, with high consumer confidence and a booming housing market. Despite this seemingly rosy picture, however, investors, agents, and homebuyers are collectively concerned about the potential for real estate trends to take a turn for the worst. Let’s take a look at mitigating factors.
Excessively High Home Prices
Rising interest rates, rapidly rising home prices, and government policy turbulence lend some credence to crash concerns, especially for buyers in hot markets. How long can a $40,000 salary support a luxury car, lavish lifestyle, and monster mortgage? An economic downturn or sudden rise in unemployment could quickly fuel financial instability.
Rising Interest Rates
A recent Forbes report noted virtually all modern rate hikes have led to recession, financial or banking crises. If the Fed continues rolling-out rate increases, inflation will slow down sales, particularly in hot markets. Cost and availability of credit are fuel for bubble inflation, inviting less credit-worthy/inexperienced buyers into the game.
Rising rates are a negative indicator of future real estate trends. Financing will prove difficult, even though home prices aren’t as high as 2006/2007, mortgage rates are lower, there are fewer zero-down buyers, and there’s no ‘creative financing,’ for those burdened with debt.
Stock Market Volatility
Could stock market volatility factor into a housing crash? Despite a thriving housing market and rising home construction, 100 economic experts polled by Zillow believe a recession is on the horizon for 2020. If Americans are employed and wages rising, some believe this may not result in a bubble, but some aren’t convinced.
Trade War with China
Some see the end of free trade a foreboding sign. The tightly woven network of the world’s economies are interdependent. The current trend toward ‘trade protectionism’ could impact those markets, creating a backlash for the U.S. housing market where foreign economies invest.
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