A Housing Market Bubble?
Yes! And It Could Spell Trouble
A housing market bubble is the last thing many real estate "gawkers" expect considering the relentlessly gloomy economic news we have been getting. However, I will lay out my arguments for why I think we may be experiencing a sort of housing market bubble (a miniature one at least). First, let's start with the fact that the housing bubble that took place roughly from 2000 to 2005 did not reflect any particular underlying strength in the US economy, but rather the availability of "easy money", backed by borrowed Chinese money. Since 2008, housing market reports indicate that the collapse of housing prices in many parts of the country has been followed by a collapse in employment, manufacturing and the economy at large.
A New Housing Market Bubble
Created by Government Incentives
In response to those dire conditions, the The American Recovery and Reinvestment Act of 2009 made provisions for up to $8000 dollars in First Time Buyer Tax Credit to be made available for first-time homebuyers (or people who have not owned a house in at least 3 years) who were able to purchase a principal residence at any time between January 1st to December 1st 2009.The lions share of the sales bumps (housing market bubble) being reported in some markets is directly attributable to some of the effects from these government interventions. While my real estate investing articles (including recent ones) have encouraged investors who can afford to jump into the market to do so, my most experienced investor friends believe that many first-time home buyers, may still be overpaying given current conditions. For instance, I was given an example of a market in the Washington DC area where first time home buyers are purchasing property at around $250,000 dollars in the same neighborhoods where REO properties (Bank owned homes) are listed at $50,000 to $60,000 dollars! Good for local rehabbers, but terrible for current buyers! Many of those houses can be brought into pristine move-in condition for between $30,000 to $50,000 dollars! And keep in mind that the banks still have millions and millions of dollars worth of bad debts that they are not moving on; there are thousands of houses that the banks should have foreclosed on which they have not taken action on. With the underlying employment picture not projected to improve or even turnaround in a short time, it's anybody's guess what happens to house prices if the banks finally decide to unload their bad debts. Many of today's happy buyers in the current housing market could be searching vainly for their equity in a short time. So What Am I Saying? I'm not advising anyone to stay out of the housing market. Real estate markets are cyclical, and as bad as things are, we're still just experiencing the cycle. However, for those of you buying, you really should be looking at the number of bank-owned properties where you are, what they are listed at, and maybe factor in some future "pain event" within the next 14 months when lenders do unload their bad debts. BUY LOW!!!
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