3 Of The Top 9 Reasons That The Real Estate Bubble Is Bursting

Posted by on Nov 25, 2019 in Real Estate | Comments Off on 3 Of The Top 9 Reasons That The Real Estate Bubble Is Bursting

If you ever own real estate or are thinking of buying real estate then you significantly better pay attention, because this could be the most important message you receive this year related to condo for rent bangkok and your financial future.

The last five years may see explosive growth in the real estate market and as a result many people believe that property is the safest investment you can make. Well, that is no longer legitimate. Rapidly increasing real estate prices have caused the real estate current market to be at price levels never before seen in history when changed for inflation! The growing number of people concerned about the real estate real estate means there are less available real estate buyers. Fewer prospective buyers mean that prices are coming down.

On May 4, 2006, United states Reserve Board Governor Susan Blies stated that “Housing has really sort of peaked”. This follows on the heels in the new Fed Chairman Ben Bernanke saying that he appeared to be concerned that the “softening” of the real estate market would hurt our economy. And former Fed Chairman Alan Greenspan previously identified the real estate market as frothy. All of these top financial industry experts agree that there is already a viable downturn in the market, so definitely there is a need to know the reasons behind this change.

3 on the top 9 reasons that the real estate bubble will rush include:

1 . Interest rates are rising – foreclosures are usually up 72%!

2 . First time homebuyers are priced away from the market – the real estate market is a pyramid and the starting is crumbling

3. The psychology of the market has developed so that now people are afraid of the bubble bursting aid the mania over real estate is over!

The first reason the real estate bubble is bursting is rising interest rates. Less than Alan Greenspan, interest rates were at historic lows out of June 2003 to June 2004. These low interest rates made possible people to buy homes that were more expensive then what they may possibly normally afford but at the same monthly cost, essentially building “free money”. However , the time of low interest rates has ended like interest rates have been rising and will continue to rise further. Interest rates will have to rise to combat inflation, partly due to high natural gas and food costs. Higher interest rates make owning a dwelling more expensive, thus driving existing home values down.

Better interest rates are also affecting people who bought adjustable mortgages (ARMs). Adjustable mortgages have very low interest rates and low every-month payments for the first two to three years but afterwards the low interest disappears and the monthly mortgage payment jumps dramatically. As a result of versatile mortgage rate resets, home foreclosures for the 1st quarter regarding 2006 are up 72% over the 1st quarter involving 2005.

The foreclosure situation will only worsen as car finance interest rates continue to rise and more adjustable mortgage payments are adjusted to a higher monthly interest and higher mortgage payment. Moody’s stated that 25% in all outstanding mortgages are coming up for interest rate resets for the duration of 2006 and 2007. That is $2 trillion of U. S. mortgage debt! When the payments increase, it will be a large hit to the pocketbook. A study done by one of the country’s greatest title insurers concluded that 1 . 4 million households could face a payment jump of 50% or more if the introductory payment period is over.

The second reason that the real estate property bubble is bursting is that new homebuyers are no longer able to invest in homes due to high prices and higher interest rates. Real estate market is basically a pyramid scheme and as long because number of buyers is growing everything is fine. As homes are generally bought by first time home buyers at the bottom of the pyramid, the new money for that $100, 000. 00 home proceeds all the way up the pyramid to the seller and buyer on the $1, 000, 000. 00 home as people peddle one home and buy a more expensive home. This double-edged sword of high real estate prices and higher interest rates includes priced many new buyers out of the market, and now we are start to feel the effects on the overall real estate market. Sales are lessening and inventories of homes available for sale are rising immediately. The latest report on the housing market showed new home profits fell 10. 5% for February 2006. This is the most significant one-month drop in nine years.

The third reason how the real estate bubble is bursting is that the psychology of the homes sales market has changed. For the last five years the real estate market has climbed dramatically and if you bought real estate you more than likely made capital. This positive return for so many investors fueled this market higher as more people saw this and thought to also invest in real estate before they ‘missed out’.

The particular psychology of any bubble market, whether we are preaching about the stock market or the real estate market is known as ‘herd mentality’, wheresoever everyone follows the herd. This herd mentality is a the heart of any bubble and it has happened numerous situations in the past including during the US stock market bubble of the later part of the 1990’s, the Japanese real estate bubble of the 1980’s, and even dating back the US railroad bubble of the 1870’s. The herd mind had completely taken over the real estate market until recently.

Typically the bubble continues to rise as long as there is a “greater fool” to order at a higher price. As there are less and less “greater fools” on the market or willing to buy homes, the mania disappears. If your hysteria passes, the excessive inventory that was built within the boom time causes prices to plummet. This is true for any three of the historical bubbles mentioned above and many other historical versions of. Also of importance to note is that when all three of these fantastic bubbles burst the US was thrown into recession.