In the event you own real estate and thinking of buying real estate then you better pay attention, because could be the main message you receive this year regarding real estate and your financial future. Condos To Castles
The previous five years have observed volatile growth in real house market and therefore many people assume that real house is the safest investment you can make. Very well, that has ceased to be true. Rapidly increasing real estate prices have caused the real house market to be at price levels never before seen in history when adjusted for inflation! The growing number of men and women worried about real estate bubble means there are much less available real house buyers. Fewer buyers imply that prices are approaching down.
On May 4, 2006, Federal Reserve Panel Governor Susan Blies explained that “Housing has really kind of peaked”. This uses on the heels of the new Fed Leader Ben Bernanke saying that he was concerned that the “softening” of the real estate market would hurt the economy. And former Fed Chairman Joe Greenspan previously described the real estate market as frothy. All of these top financial experts consent that there is already a viable downturn in the market, so plainly there is a need to know the reason why at the rear of this change.
3 of the top 9 reasons that the real property bubble will burst include:
1. Interest levels are rising – foreclosures are up 72%!
installment payments on your First time homebuyers are priced out of the market – real property market is a pyramid and the base is crumbling
3. The mindset of industry has improved so that now people are afraid of the bubble bursting – the mania over real real estate is over!
The first reason that real real estate bubble is bursting is rising interest rates. Beneath Alan Greenspan, interest levels were at historic lows from 06 2003 to June 2005. These low interest levels allowed individuals to buy homes that were higher priced then what they could normally find the money for but at the same monthly cost, essentially creating “free money”. However, the time of low interest levels has ended as interest levels have been rising and will continue to climb further. Rates of interest must go up to combat inflation, to some extent due to high fuel and food costs. Larger interest levels make owning a home more expensive, thus driving existing home beliefs down.
Higher interest levels are also affecting people who bought adjustable mortgages (ARMs). Flexible mortgages have very low interest levels and low every month payments for the first two to three years but afterwards the low rate of interest disappears and the monthly mortgage payment advances dramatically. Resulting from adjustable mortgage loan rate resets, home house foreclosures for the 1st one fourth of 2006 are up 72% over the very first quarter of 2005.
The foreclosure situation will only worsen as interest levels continue to rise and more adjustable mortgage payments are adjusted to the next interest rate and higher loan payment. Moody’s explained that 25% of all outstanding mortgages are arriving up for interest rate resets during 2006 and 2007. That is $2 trillion of U. T. mortgage debt! When the payments increase, it can be quite a hit to the pocketbook. A study done by one of the country’s major title insurance firms concluded that 1 ) 4 million households will face a payment hop of 50% or more when the introductory payment period is finished.
The second reason that the real house bubble is bursting is that new homebuyers are no longer able to buy homes due to high prices and higher interest rates. Real house market is basically a pyramid scheme and as long as the amount of buyers is growing everything is fine. Because homes are bought frist by time home buyers in the bottom of the pyramid, the new money for that $100, 000. 00 home goes all the way up the pyramid to the seller and buyer of any $1, 000, 1000. 00 home as people sell one home and buy an even more expensive home. This double-edged sword of high real estate prices and higher interest levels has priced many new customers out of the market, and now we could starting to feel the results on the overall real estate market. Sales are slowing and inventories of families available for deal are rising quickly. The latest report on the housing market showed new home sales fell 15. 5% for February 06\. This can be a major one-month drop in nine years.
The third reason that the real estate bubble is filled is that the mindsets of the real real estate market has changed. The past five years the real estate market has risen drastically of course, if you bought real estate you more than likely made money. This kind of positive return for so many investors fueled industry higher as more people saw this and chosen to also invest in real estate before they ‘missed out’.
The psychology of any bubble market, whether we could talking about the stock market or maybe the real estate market is known as ‘herd mentality’, where everyone follows the crowd. This herd mentality is at the heart of any bubble and they have happened numerous times before including during the US wall street game bubble of the late 1990’s, the Japanese people real estate bubble of the 1980’s, and even as far back as the US railroad bubble of the 1870’s. The herd mentality had completely taken over the real estate market until just lately.