2021 Housing Crash around the corner? Low Interest Rates could cause the crash to come sooner than later.
Home prices in America in 2021 have surged to record levels, pricing out many home buyers and real estate investors from the market. A Housing Crash could be inevitable. But many believe that low interest/mortgage rates will keep the Housing Market Bubble going.
Mortgage rates have declined significantly over the last 40 years – from a high of 18% in 1981 all the way down to 3% in September 2021. These low rates have made the monthly cost of owning a home stay reasonable, with the typical annual mortgage payment in 2021 similar to four decades ago.
Over the same time frame, home prices in America have surged. The typical price of a home has increased from $30k to $300k – a 10x increase – since the 1980s. As a result, the down payment (10%) has surged from $6k to $30k in the same span.
Skyrocketing down payments is creating big problems for the US Housing Market. Renters (aka future First Time Home Buyers) are struggling financially, with lower average savings today than they had 30 years ago (you read that right). Whereas in the 1980s and 1990s renters had more savings than required for a down payment, now they have significantly less.
The result is a significant portion of America is locked out of the US Housing Market. And no matter how low monthly mortgage payments go they will not be able to participate given how high prices and down payments are.
But not only a significant share of renters/first time buyers priced out. Many simply don’t want to buy, even if they do have the cash. Recent data from the Fannie Mae Housing Survey shows that a record percentage of Americans think it is a BAD time to buy a home.
With renters priced out, investors are stepping in and continuing the speculative bubble. Data from Redfin shows that investors purchased more homes in the second quarter of 2021 than any other period in US history.
These investors are speculating in the Housing Market and inflating the Housing Bubble to crazy levels. But what happens when home prices start declining? What do these real estate investors do then?
Case Shiller 2004 Paper:
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0:00 Record Low Rates! BUY NOW?
1:19 50 Years of Housing History
3:18 Monthly Payment or Down Payment?
4:37 Stagnating Renter Savings
6:53 $30k Typical Down Payment
9:03 Americans Say: BAD Time to Buy
10:58 Who IS Buying Right Now?
12:18 SPIKE in Investor Home Purchases
13:48 Small-Time Investors / Mom & Pop
15:12 Quote from Robert Shiller
16:52 Join for the Reventure Newsletter!
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