Episode 6: Are We in a Housing Bubble?
This episode of The Real Investor Podcast answers the always looming question, are we in a housing bubble? Based on Dennis’ U.S. News & World Report article, the episode covers the four things every real estate investor needs to know about the housing market. Let’s get right to it- the U.S. on a national level is nowhere near a housing bubble. However, that’s not to say individual markets are not at risk. Here’s what you need to know:
- The subprime mortgage market is a clear indicator that we are not nearing another bubble. The housing market would have to be propped up on bad loans and this is not a factor in today’s economy.
- The new home frenzy is no longer present. In the build up to the crash, mortgages were being given out to anyone and homeownership peaked. Now, we are seeing a significant drop in new home sales, a much smaller rate of new home building, and much more difficulty to obtain a mortgage.
- Now to talk about local bubbles. Dennis highlights Miami’s condo market due to its inorganic rebound from the recession. Latin American investors drove up the prices and created an unsustainable demand.
- The final point Dennis covers is regarding rising interest rates. The Fed has only raised interest rates one quarter of 1 percent but at some point they will rise, and investors need to be prepared. In this episode he talks about how this can help or hurt investors. A downside to rising rates is that your buying power will decrease. Balloon payments at higher rates also have potential to hurt an investor's returns. The flip side is that more people will be renting which is great news for investors looking to charge higher rents.