The housing market has been on an incredible tear since early 2006! Since then, house prices have increased at a steady pace with little to no slowdown in sight. Many believe that this boom will continue for years to come. Others, however, are more cautious and think that the bubble is about to burst. They argue that overvalued houses will start losing their appeal as people can’t afford them and thus selling speeds will drop.
It seems that everyone has an opinion on whether or not the housing market is overpriced. Some say that it is still too expensive relative to what properties were like back when Barry O’Neill was bidding against Cristiano Ronaldo for his childhood football team.
Others feel that while some areas may be slightly inflated, most of the country is not. After all, how many places do you know where homes cost less than half a million dollars? If anything, they claim that home values are quite high compared to what previous generations could ever dream of.
We probably wouldn’t be having this conversation if homeowners didn’t want to make lots of money off of their property. But is owning a house really a good investment anymore?
Does buying a house always make sense? For the average person who wants a down payment on a car, a house is a reasonable choice. However, there are risks involved for investors looking to profit through real estate.
Existing factors that could lead to a real estate crash
Certain factors have been gathering momentum for some time now, indicating that we are already in early stages of a real estate market collapse. While most people agree that there is something off about our housing markets right now, they may not all be aware of what those factors actually are or how serious they can become.
Many believe that a house price drop is unlikely because average home prices have never reached their historical highs before. However, this argument ignores the fact that past averages do not tell us much about where the market is heading today.
Average home prices often climb steadily for quite some time after reaching an all-time high, only to see a downturn later on. For example, you would not expect to find many homes under $100 000 easily just two years ago, but you would now!
Likewise, average home prices frequently remain relatively stable for several years before experiencing a significant decline. This was the case during the Housing Bubble when average house prices barely changed year over year, even as investment frenzy unfolded around them.
When these events occur it usually triggers fears that the market has hit its peak and will soon begin a downtrend. But here’s the thing: they almost always end up having the opposite effect.
Potential future factors that could lead to a real estate crash
There are several potential causes of a real estate market crash, some major and some minor. Some significant risk factors include:
A rapidly rising number of homeowners who can no longer afford their homes
More home sales than new listings creating a surplus of houses
Higher demand for housing with limited supply
We’ve seen all three occur in various parts of our country already!
If you are invested heavily in the real estate market, it is important to remain level headed and prepare in case things go south. A bear market isn’t something most people expect, but it is possible.
Fortunately, there are some ways to reduce your exposure to the risks of a down turn so that when the time comes, you’re not completely wiped out. Here are some tips for protecting yourself from the big fall.
What would the effects be of a real estate crash
While there has been a lot of talk about a possible real estate market crash, very few people know what it actually is. Many refer to a housing or “bubble” that has inflated beyond reason.
When we use the term bubble in relation to real estate, we are referring to anything from excess home supply to overvalued homes. All of these contribute to increased demand which then stimulates more production and thus greater inflation.
At some point though, this cycle will break down and become unsustainable. When it does, we will see a drop off in both sales and prices.
There can also be significant losses for investors who have built their wealth on owning property. By the time the crunch comes, many owners may not want to sell and could even wait for the price to come back. This creates another unstable situation.
While a downturn is never fun, understanding how and why bubbles occur makes preparing for one much easier.
What can be done to protect yourself
Even if you don’t own real estate, it is still important to watch out for scams in the market. Because of this, there are many ways to stay informed about the bcrealestateindustry. Some of these strategies include listening to The Listening Group radio show, reading business blogs, subscribing to newsletters, and talking with people who have been affected by the bcratioenss.
There are also some things that could help prevent individuals and businesses from being scammed. People should review legitimate sites before buying a property, and make sure to do your research online before investing money. By using these tools, you will know what to look for and which sites are legit!
It is very difficult to avoid all types of fraud while investing, but staying aware will reduce your losses considerably. Unfortunately, because the bcroal estate industry is so popular, there are sometimes too many opportunities for scam artists to exploit.
What should you know about the mortgage-banking system?
The best way to understand how the real estate industry works is to look at it as a supply-and-demand model. There are only so many homes being built, and there are only so much money in the world for new home purchases.
When demand outpaces supply, we have a bubble. When people can’t get enough of what they want, prices rise. At this stage, some people will pay almost any price for a house, even if it isn’t worth that much. This is why you see stories of wealthy individuals buying up huge tracts of land or flipping houses faster than normal — they’re trying to jump onto the bandwagon and profit from the market’s boom.
As more and more people try to buy a house, housing supplies dwindle. Builders stop building because they don’t make enough money, and banks start refusing to lend money to buyers due to risk factors.
Does the government help with mortgage insurance?
Even though I mentioned before that the answer is yes, they do not contribute very much MI anymore! The amount that they contribute has been reduced so heavily that it is barely worth mentioning any longer.
The Federal Housing Finance Agency (FHFA), which was once responsible for insuring mortgages by buying some of them, now only buys mortgages that are either credit worthy or have a guaranteed second loan that will repay the first one if you default.
This second loan is called a “government backed” mortgage because the federal government guarantees it.
But this also means that all too often, banks can make money off of the federal government in the form of a mortgage insured by them!
It seems like every bank out there tries to get as many loans insured by the FHFA as possible, making it harder for regular people who want a home to own one.
What are the different types of mortgages?
A mortgage is an easy way to get money to buy or invest in a property. There are two main components of a mortgage; how much credit you have (ability to pay) and what type of loan you can take out.
A personal line of credit like a VISA card is not considered credit so it will not work as well for a mortgage.
Most people use both their credit cards and savings account to meet the requirement for a mortgage lender. A lot of times, lenders require at least 2-3% of monthly income in the form of a deposit that they keep as a safety net in case you cannot make your payments. This protects the seller from being stolen away by buyers with no means to repay the loans!
Too many people assume that a mortgage is only for wealthy individuals who can easily put down a large amount of money as a deposit. This is wrong! Almost anyone can qualify for a mortgage if they know what products exist and how to choose one that fits their needs.
What should you choose?
Choosing whether or not to invest in Bitcoin or real estate is an important decision. While both are great opportunities, they’re also risky investments that could lose value.
It’s totally normal to be curious about both investing strategies at times. It’s even more common to try to figure out which one has a higher chance of success and making money. That’s why it can sometimes feel overwhelming when deciding what’s best for you.
That’s completely natural! But remember, no matter what investment strategy you pick, just because something lost value doesn’t mean you wasted your hard-earned money.
Real estate has always fluctuated in price so there’s really no way to predict how much it will go up or down. Investing in bitcoin likewise has a very fluid market, with prices constantly changing.
What makes one investment strategy better than another depends mostly on your personal goals and expectations. If you want to make sure your savings keep growing, buying stocks may be your best bet compared to buying bitcoins or owning a house. On the other hand, people who like riskier ventures might prefer investing in bitcoins as they potentialy earn more money.
We hope this article helped clear some of the uncertainty surrounding whether or not investing in bitcoins is a good idea.