Another Housing Bubble? Maybe Not

AMA5-7-13The housing market is springing back, and that has some housing industry observers looking for a downside. And now, with memories of the recent housing collapse still relatively fresh, some financial and housing experts are finding signs of another one looming on the horizon of rising home prices, short supply and increased demand. But although some lenders are offering no-interest loans and courting buyers with iffy credit, the conditions in today’s market are quite different from those that created the mortgage meltdown of 2008.

In the early years of the new millennium, housing was hot. Lenders made mortgages available to all comers, virtually without qualification, which fueled the so-called “subprime mortgage crisis.” Many offered loans with no interest, or no down payment at all. And many of these borrowers, trapped into loan arrangements they poorly understand, fell into default and, for large numbers, foreclosure. Those massive numbers of foreclosures, combined with mismanagement and outright fraud on the part of major lenders, sent the housing industry into a downward spiral that’s only recently begun to reverse.

Why the concern about a new bubble that might burst and undermine the housing recovery? Now, as then, housing markets are heating up. Home prices are rising as demand increases. Some major markets around the country are facing a severe shortage of available properties for sale. And despite the ongoing fallout from the foreclosure crisis and the days of indiscriminate lending to “subprime” borrowers, no-interest loans and no-down purchase options are appearing once again on the menu of lending options at some institutions.

But industry watchers point out that even though some of the signs are similar, there are still some major differences between conditions before the crash and the current environment. In general, mortgage-lending standards are tighter, forestalling some foreclosures. Mortgage applicants are different too. While pre-crash home buying was driven by unbacked borrowing, many of today’s transactions involve cash – either as full purchase prices or large down payments. Renting is a hot option too, keeping some riskier prospects out of the homebuying process –at least for now.

Interest rates now are still at historic lows. Although government intervention aims to keep them down, experts predict that they’ll be rising, reaching 4.5 percent by early 2014 – a development that may help to put the brakes on runaway housing markets. Along with limited supplies of homes for sale, that’s expected to keep down the indiscriminate lending that popped the last bubble.

A variety of factors in the larger economy also affect movement in the housing market. Stalled recovery in sectors such as manufacturing and industry can mean limited job grown and depressed wages – factors that contribute to slowdowns in both rental and homeownership.

Some of the same factors that appear to signal a new housing bubble about to bursts may actually work in the favor of investors applying Jason Hartman’s strategies for building wealth through income property. Low interest rates, and even the availability of loan products to meet many different needs may combine to open more doors than a bursting bubble might close.  (Top image:Flickr/whologwhy)

The American Monetary Association Team

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