The housing market has been in an ever-escalating state of boom since the early 2000s, with home prices steadily rising and homeowners increasingly incentivized to keep buying and selling as their homes increase in value.
This is great for those who own or are looking to buy a house at this time, but it’s not so great for everyone else.
As houses have become more expensive, people without enough money to purchase one are left out. This is especially true for young professionals just entering the workforce and trying to start a family, as well as low income families who cannot afford a down payment.
Many believe that we will soon see a crash in the housing market. When this happens, there could be a large amount of defaults on loans tied to property ownership, which would then put significant pressure on lenders to stop lending money to buyers and sellers.
Lenders would then begin refusing to give mortgages, and thus creating a self-fulfilling prophecy where no one can get a mortgage. According to some experts, we may already be at that stage.
Less money is being put down on properties
One of the biggest factors that play into whether or not the housing market crashes is how much people are putting in for a house. The more people who want to buy, the less likely it will be at some point that a home goes up for sale.
When we refer to people buying a house, there are two main categories: those looking to move in immediately and investors looking to make a profit off the property.
People who intend to live in their new residence quickly do not need as large an amount invested as someone who wants to reap the benefits of capital growth. This is why they are called “buy-and-hold” owners – they hold onto their homes for a few years until they can afford larger mortgages with bigger payments.
Investors also have a lower expectation of what the value of a house will be, which makes them willing to spend more money.
There will be a glut of properties
As we mentioned earlier, there is currently an oversupply of homes across all price ranges in almost every market. This includes both newly constructed and pre-existing home markets.
There are several reasons why this happens. One major reason is that homeowners who want to sell their house have a hard time finding buyers.
Another cause is when people buy a new house, they choose to keep it as their own residence instead of renting out or selling it. Both situations create a surplus of housing inventory which can sit for months or even years before being sold.
A third factor comes down to how much houses cost to build. More companies enter the construction industry due to lower costs, resulting in more houses than needed.
The last one is rising property taxes which make it expensive to maintain and live in your current house. People with higher income levels are paying larger tax bills, so they either need to look for cheaper alternatives or move somewhere with less competition for real estate.
Overall, these factors contribute to the surplus of homes.
Investors will start to sell their properties
As we mentioned earlier, there are two main groups of people who invest in real estate. The first is individual investors, or homeowners who buy a house and improve it. This can be done through buying a new home, improving your current one, or both!
The second group is professional investment firms that recruit individual investors to work with them. These professionals usually get paid large sums for recruiting other individuals to invest in real estate projects.
Both types of investors need to find a property they want to purchase and then finance the deal. They also have to make sure everything goes according to plan – you don’t want to invest money and things go wrong!
If an investor doesn’t do these things, then everyone loses out. So how will all this investing gone bad affect the real estate market?
Well, as more and more individuals begin investing in the market, the number of homes available for sale will drop. Because most people own a house already, there won’t be very many empty spaces for others to grab onto.
This means that if someone wants to buy a house, they will probably have to pay a higher price than what the current owner was offered. If enough people start doing this, the value of houses will fall.
On top of that, once all those personal investments are sold, even bigger gaps will open up at auction. Without anyone buying a house, supply will dry up and demand will rise.
The economy is still not strong enough for a crash
Even though we are now in what many call an “overgrowth” market, that does not mean there will be a crash. We have seen a lot of talk about whether or not the housing market has hit its peak, but this topic can get confusing very quickly.
When we refer to a house market being at a peak, we are referring to how much houses cost compared to how much people payed for them three years ago. This price-to-income ratio is one of the main factors used to determine if the housing market is overpriced.
If you remember back then, homes were going up in prices faster than income could keep up. Many experts believe that this situation has already happened with the current market.
But what most don’t know is that it takes time before the effects of such a boom move into action.
People will lose their homes
The other major cause of an overvalued real estate market is people owning too much property. We have seen this before! When the housing market collapsed in 2008, it was due to many reasons, one being that individuals purchased large houses with lots of land as well as swimming pools and cars.
When these people lost their jobs or could no longer pay their bills, they were left without income. They are not able to continue paying for their homes if they want to stay there.
So, they either need to sell or lower their payments which can mean lowering their monthly budget. If they choose to keep their house, they may be living in a property that they cannot afford anymore.
This is how the overvaluation starts again because someone who was spending more money than they should has to look for cheaper accommodation instead.
There is also the risk of your home being devalued very heavily so that you would make a loss when you try and sell it. This would only happen if you believe it is your lucky day and it sells quickly for a low price.
Many experts say we are already in a pre-bubble phase of the market where such events are possible.
There will be bank runs
A lot of people have heard about how much money there is in real estate, and how easy it can be to make a large amount of cash by investing in a house or buying a whole bunch of houses.
But what few know is that those investments are actually very risky — and if enough people decide to pull their money out at once, then the risk becomes too great for investors to bear.
That’s why I believe we are already heading towards a full-on housing crash. And when a big chunk of the economy crashes, you usually see a recession coming soon after.
So even though things aren’t looking bad yet, don’t get comfortable. Because sooner or later, everything comes together.
A banking crisis, an economic collapse, and a housing meltdown all happening at the same time would be disastrous not only for the individual investor, but also for the overall health of the market.
It would send ripples across the entire economy, and could potentially destroy the fundamentals of our financial system.
And although a crash like this has never happened before, there are some clear warning signs now which indicate it’s getting closer.
Gold will rise in value
While some say that owning gold is expensive, it’s actually quite affordable compared to what it was even just five years ago. Back then, one kilo (2 pounds) of 24 karat gold cost around $3,000-4,000! Now a kilogram costs about $1,500-$2,200.
Why has gold dropped in price? Because we are now in an era where paper money no longer works.
Governments have become too big and powerful, printing more money than they have access to. This caused inflation, which means their currency loses its value over time. As people start buying gold because it retains its worth, there is less supply, and thus higher prices.
In fact, many experts predict that the price of gold will eventually reach $10,000 per ounce! At that price, one gram would be enough to make anyone wealthy.
There could be a recession
Recent events have put the real estate market in some major markets around the globe into a bit of a slump, which has many people worried about how to invest in this space. Many believe that we are already in the midst of a bearish real estate cycle, and there is no telling when it will end. If you are looking to get out of the stock market, investing in real estate may be your best option.
There’s just one problem though — how will the real estate crash happen? Technically speaking, there’s nothing inherently wrong with the way the housing market operates at present, but something seems off about how quickly things are changing for the worse.
If you look back through history, recessions tend to occur during either or both of two conditions: a financial crisis (defaulting on debt or bankruptcy), or a war.