64.3% of Americans currently own their own home. Rising prices, however, have led many people to believe that they’ll never get the chance to purchase their first home.

Many experts believe that we’re heading towards another housing bubble. Is this the case? Read on for a balanced view of the housing market so you can make an informed decision about buying a home.

What is a Housing Bubble?

When the real estate market crashed in 2007, there was one term dominating the news cycle. This term was ‘housing bubble.’ What is a housing bubble? What makes us more likely to experience a housing bubble? How can we know if one is on the way?

A housing bubble means that house prices have risen to above the average. This can be due to speculation, higher demand, and/or overzealous investing. These things drive prices up until the market can’t support housing at that price anymore. In 2007, loose lending standards and low interest rates contributed to the bubble.

Housing bubbles don’t only impact the real estate market. They also affect personal wealth, neighborhoods, and the larger economy. Unsavory mortgage programs are tempting, and when the bubble pops, people can lose both their savings and their homes.

It can be difficult to see a housing bubble coming until it pops. This is the moment when there is a greater supply of property and a decrease in demand. After prices increase, they’ll drop as buyers decide they’re no longer willing to pay as much for homes.

If interest rates rise, owners may owe more than their house is worth. This means a greater rate of foreclosures, which drives prices even lower, further flooding the market.

Are We Approaching Another Housing Bubble?

Talk to 10 experts about real estate, and it’s likely that five will say a housing bubble is on the way, and five will say there’s no chance of another bubble.

If you’re considering buying a home, it makes sense to gather as much information as you can, so you can make a smart, informed decision.

Let’s look at both sides of the coin:

Signs We’re in a Housing Bubble

One sign of a bubble is when home prices escalate. Right now the national median family home price is 32% higher than inflation. In 2006 (right before the housing bubble burst) values were 35% higher.

If a buyer has a 30-year loan, and interest rates rise from 4% to 5%, they’re paying 12% more on their mortgage each month. Compare this to disposable income, which has increased only 1.9%.

Another barometer for a bubble? Stocks most related to the housing industry. These include mortgage companies and homebuilders. In 2004 and 2005, these skyrocketed. Since then, they’ve remained flat. However, the past 12 months have seen these stocks rise again- similar to 13 years ago.

We’re also seeing lending issues allowing people to borrow 95% (or more) of their home’s value. This is a big problem because when house prices decrease, it’s much easier for a home buyer to walk away from their mortgage.

The biggest danger is another recession, which many economists view as inevitable. A number of things can launch a housing crash, from trade wars to geopolitical events. With Trump’s “Trade wars are good” rhetoric, many are panicking that trade tariffs, inflation, and increases in the cost of living will all cause a recession, leading to a housing market bust.

Signs We’re Not in a Housing Bubble

Many other experts believe that there are plenty of reasons for property buyers to be optimistic. While plenty of millennials are uninterested in purchasing property, this generation is also aging into homeownership- even as boomers move into retirement. Millennials should fuel demand- as long as employment stays strong.

While house prices are high, they’re not necessarily inflated. In the last crash, lenders were irresponsible and subprime mortgages contributed to the housing bust. As unqualified buyers were entering the market, demand was soaring. People bought homes as investment properties, planning to sell them when prices rose even more. This is a type of irrational exuberance and a big sign of a housing bubble.

Now, lenders are much more responsible. Lending standards have risen, as have credit scores– with a much higher FICO score for borrowers. Lenders will also only finance 55% of the home’s value for flippers. This was 80% or more during the subprime crisis.

As mentioned there are a few things that could cause a collapse. Higher interest rates make loans more expensive. If hedge funds and banks begin investing in risky products again (such as derivatives), the real estate market would be likely to collapse.

The Trump tax reform plan suggests removing a deduction worth $71 billion for mortgage interest rates. This is a tax break for homeowners, taking away much of the incentive to buy a house.

Planning to Buy a House?

Experts use a range of data to form their opinions. The best time to buy a house depends on your own unique circumstances. This company can help you decide where to buy and give you advice about the type of property and area you can afford based on your financial circumstances.

One of the best things you can do is be conservative with your purchase. Aim to spend no more than 30% of your income on your mortgage each month. If possible, choose a fixed-rate mortgage so your payment will stay the same even if rates rise.

Don’t buy more house than you need, and aim to pay your mortgage off early.

Wrapping up

It’s difficult to tell if we’re about to experience another housing bubble, but hopefully, the above information will you decide whether now is the right time to buy a property. Property prices vary substantially throughout the country. If you’re unwilling to pay San Francisco prices, you can likely find something in your price range in Chicago for example.

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