Who does not love it when a water bubble pops? Real Estate Bubble is not similar to that. However, there is a tiny resemblance; they both try their best to hold the pressure causing the bubble to reach its maximum endurance volume before bursting. Today, we will discuss the US Real Estate Bubble. The recent outburst of rumors regarding the about-to-flop housing market is true to the very core. ‘How?’ Why’ ‘When?’ And ‘What should I do?’ are some of the questions you will likely be asking yourself right now. Do not worry; I will answer your queries in this post.
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What Is US Real Estate Bubble?
I am sure you would second me when I say US housing is pricey. Not just pricey, it is out of reach for some. After the market crashed in 2008, it recorded the lowest prices in 2012. However, the real estate stabilized and started swelling to around 59% by Feb 2020. Everything was going fine, but then the Covid-19 appeared, and nothing has ever been the same again. Has it? Like other markets, the US Real Estate also suffered. However, according to analysts and observers, a drastic wave of recession will take over the US market soon, causing a huge breakdown in the ever-rising prices. Kind of like a bursting bubble!
Why US Real Estate Bubble Burst In 2020?
It must not be too hard to answer this one, as you know what happened on Earth in the year 2020 – the Covid-19, of course. The pandemic did not only hit the US real estate, but it also affected other global markets. With the inflation increasing in the last eight years, the US real estate bubble had to burst. And what year could it be other than 2020? Keep reading to learn about the reasons why an inverted V graph is going to haunt the real estate starting this year.
Possible Reasons Of Housing Market Crash in US Real Estate
1- The Pandemic affecting Real Estate Bubble
Let’s start with the most obvious reason for the US real estate bubble burst, i.e., the COVID-19. As the global pandemic spread across the globe, economic downfalls followed it almost immediately. The contagious disease demanded strict lock-downs, and many industries had no other option but to shut down. Unemployment rose consequently so much so that over 36.5 million were left jobless in under two months, surging the unemployment rate to 14.7%. On the other hand, real estate never adjusted to the impact and continued to swell with a median house worth remained over $350,000.
2- Expected Increase Led Astray
I can sell for more in the future, so I can pay more for it now.’ A typical mindset led the market into making a time bomb that had to explode someday. The continuous increase in demand and inflation was inducted into the decision making throughout the real estate market. Nobody focused on the market basics like income raise or affordability. It resulted in a constant gassing up of the US real estate bubble.
The housing costs dialed up by 30% from 2012 to 2017 against a median income growth of only 17%. Consequently, the number of vacant apartments and unwanted real estate continued to stack up. And in 2020, a very few could afford such high payouts amid the pandemic of course.
3- The Interest Rates influence on Real Estate Bubble
Exceedingly high-interest rates have a big role to play in too. Most of the real estate regulates by loans and, what ultimately inflated the US real estate bubble is the overcharged lending. It slowed down lending while making returns extremely difficult. And with expensive returns, came a boom in the housing prices. Kind of like the same story that preceded the 2008 market crash!
Currently, the 30 years fixed mortgage rate is 3.49% with APR of 3.7%. It is a little lesser for the 15-year plan, while adjustable interest rates remain over 3%.
4- Climate Change impact on real estate bubble
Let’s take a look into the near future as well. What does climate change have to do with the US real estate bubble? The rising sea levels, of course! Remember Miami Beach or Coastal Florida or maybe some other coastal cities you love to spend vacations at? They are at a high risk of flooding numerous times in a year. Many such estates (over 300,000) lined near the shore are at risk of getting over 26 floods per year by 2045. And the value of this big chunk of properties combined is estimated to be over $136 billion. It can move close to $1 trillion by 2100. Even though right now, a few properties are available for over 7% discounts due to rising sea levels, with time, the market can get gloomier.
Many got to have a say in this matter, and expert analysts have a one-sided controversial war going on in favor of bubble burst theory. Some say the inflation curve is only going to flatten with a small yet recoverable market decline. While others think the bubble will burst as it did in 2008 with little to no chance of quick recovery. They strengthen their argument by showing us a new graph. It demonstrates the bubble has already been exploded with a 16.3% decline year over year in March.
Precautions in Case The US Real Estate Bubble Bursts
No one is certain about the market crash, but you need to know how to keep yourself safe if it occurs. Find out what can help you through the phase:
1- Take Well-informed Decisions
You should keep a tap on the real estate market. Do not speculate, keep yourself up to date, and make reasonable investments only. Find markets that are stable and steady. They have a far better chance of sustaining a blow compared to those with spiky investment curves. For example, North Dakota survived the 2008 market crash, with only a 2% decline in average property cost.
2- Get Your Hands On Discounted Properties
Do not find the best options in the market passionately rather use your mind. Waiting for the market to crash and then invest attitude is not wise. No one can predict the severity of the market fall and its duration. Also, nobody knows how much time will it take the market to climb back up? Maybe it will take years. However, the discounted properties are the best bet for steady gains.
3- Go For Rental Cash Flow
Basically, ‘steady’ is the solution to avoiding any risky situations. Rental incomes are one of the safest and most steady cash flows you can invest in. Moreover, the rate of increase in rental income across the states has always been a slightly mounting line on the graph. Even during the 2008 US real estate bubble burst, there was almost no effect on rents.
4- Try Not To Fall In Debts
Seemingly obvious yet the most important advice! Debts can prove to be extremely dangerous for any business out there. If you are an investor, try not to fall into any debts just before or amid a breaking market. This will not leave you room to take any action for survival.
A crashing market can take many with it. Following precautions can prove helpful throughout the recession phase while keeping your pockets full of cash. Where There is a Will, There is a Way!
Make A Career in US Real Estate License
Moving ahead, I also have a suggestion for people looking for work. How about making a career in the property market after the US real estate bubble bursts. The US real estate bubble may explode at any time, and that will bring an influx of opportunities. Until then, you can prepare for the money shower. Follow the procedure given below to become a real estate agent.
Check Out Your State’s Requirements
To become a real estate agent, you would have to navigate through a bunch of stuff required by your state. For instance, if you are wondering how to get a real estate license in Pennsylvania, the requirements are very straightforward. Personal data, fee, background check, Pre-licensing courses, eligibility checks and educational background are some of the aspects you need to take care of before you get a Pennsylvania real estate license.
Prepare for the licensing exam by taking a pre-licensing course. Costing just over $600, the full course tests your skills regarding state-specific as well as general laws related to real estate.
Tests can be hard and vary from state to state. For example, a test for Georgia real estate license can be harder or easier than a test for real estate license Virginia. So, fully prepare before you submit your fees and appear in the exam.
Join Brokerage As Realtor
After you pass the exam, join a well-reputed real estate agency as a Realtor. It will not only help you flourish in a minimum time possible but will also offer a great set of opportunities to expand your skills. Your job can be as flexible as you make it, but that comes at the cost of success. Therefore, on the one hand, you can become a part-time realtor while pursuing some other business. And, on the other hand, you can choose to be a full-time realtor exposing yourself to clients at all times to build good business relations.
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Keep in mind that the US real estate bubble is shivering; no one knows whether the bubble will burst or not. You need to prioritize your choices according to the circumstances. I have given you a brief overview of our point of view. Now, it is up to you how well you take advantage of the situation in hand and how safe you can play. Regulate your money to make some profits or become a full-time Realtor; it’s up to you.