The South is on the edge of a market crisis, according to Nick Gerli, CEO of Reventure Consulting. New homes for sale in this region rose to almost 300,000. It’s the highest level of all time, adds Gerli.
Is it bigger than the previous bubble during the financial crises 2008? The figure is higher than the massive housing bubble in August 2006. This happened before the market’s huge crash in U.S. 2008 financial crisis.
During the COVID-19 pandemic, home builders heeded the call of many Americans. They were migrating to the South due to remote work and a cheaper cost of living. Investors, home builders, and other speculative sectors predicted the market may boom. Thus, new home construction skyrocketed during that period, leading to a run-up in home prices.
“Home prices reaching new highs are creating a wider divide between those owning properties and those who wish to be first-time buyers. The mortgage payment for a typical home today is more than double that of homes purchased before 2020. – said Lawrence Yun, NAR chief economist.
But, Newsweek reports that the massive housing supply after 2020 looks like trouble. These are for states like Texas, Tennessee, Florida, and Georgia. Things changed. The demand is decreasing, and so is the number of migrating Americans. Needless to say, some buyers may have made “not-so-good” financial decisions.
What causes a housing bubble? People asking this question also search for the following information.
What Is A Housing Bubble
US Housing Bubble
Housing Market
Housing Bubble Pop
The Housing Crisis
Property Bubble
Today’s article will examine the US housing crisis, rising interest rates, and a possible alternative solution for buyers.
Contents
What Is A Housing Bubble?
The housing bubble starts with a spike in demand. But, there is a limited inventory of homes for sale, one of the signs of a housing bubble.
Housing market predictions for 2024? What happens in the supply and demand during a real estate bubble?
Bubble in the housing market can lead to price decline because of the high housing inventory. A borrower, in the current market condition, might not also be able to afford real estate prices, especially mortgage prices.
Lenders have stricter standards for borrowers. In Q1 of 2024, new mortgage borrowers had a 770 median credit score (Federal Reserve Bank of New York).
“If lending standards loosen and we go back to the wild, wild west days of 2004-2006, then that is a whole different animal,” Greg McBride, chief financial analyst at Bankrate said.
And for many who have their homes, they might be forced into foreclosure.
As more buyers jump into the real estate market, housing demand grows. The higher existing home demand and lower inventory drive the prices up.
Affordability for people than housing inventory? Unfortunately, house prices became way too expensive for the average and above-average American homebuyers.
However, nothing lasts forever. As its name suggests, “bubble,” it has no other fate but to burst. So while a housing bubble can last for several years, it is a temporary event, the International Monetary Fund (IMF) revealed.
At any time, the bubble can flatten, and even cause a housing crash.
Is the bubble bursting? Given the current situation of the US housing crisis, many external factors are in play, and one of them is the higher (and unaffordable for many) mortgage payment.
In the case of the South, experts point to Southern real estate speculators, investors, and home builders as the ones who fueled speculation and caused the home construction boom three to four years ago.
As a result, home prices have risen. The home price growth went up and became too expensive for buyers to afford. This created the housing and price bubble. Even housing economists would say that we can expect a housing market crash in residential real estate in the region.
However, such a surplus could cause a market crash, which could happen faster if a recession existed.
Now, the future looks uncertain for the housing market in the region, with demand waning and interest rates surging.
For example, in Texas, the current mortgage interest rates are 6.94% for a 30-year fixed mortgage as of July 23, 2024. This is higher than the 2.67% on December 31, 2020.
Guidance for Housing Markets & Median Home Prices
According to data from NAR, new home sales for May were 619,000*, while June sales were 3.89 million units.* There is a median home price at $426,900. Then, the starting home value price is at 1,353,000*. (NOTE: *Seasonally adjusted annual rate)
There are many expert sources of real estate information. This include identifying house bubbles, new sales, housing construction costs, and houses on the market. Information they also look for are commercial real estate and a home loan. Others are searching for house price index and housing affordability index.
A founder of real estate brokerage can help people entering the market. They can also help those who want to know more details about any housing bubble about to burst. Other information they can provide is about home prices on a broader scale.
Other expert real estate sources include the Journal of Real Estate and the National Association of Realtors (NAR). The S&P CoreLogic Case-Shiller home price reports is also good.
Such sources can be good for finding information about bubbles in housing markets, home values and balanced market. They can also offer resources, like home price index and price crash in real estate markets. Other sources can also supply information about downward pressure on prices. It is great for homebuyers of housing units to do their homework about market status (2022, 2023, 2024, etc.)
Housing Bubble: What Can Be a Solution to the Surging Mortgage Interest Rates?
Traditional homeownership might be far away for many Americans. They cannot afford the skyrocketing interest rates.
Homebuyers consider a more affordable and compact home living path as an alternative. Tiny houses measure an average size of 400 square feet or less. Meanwhile, tiny homes on wheels are only about 320 feet.
More than 1,000 surveyed Americans, and 73% of them considered living in compact living spaces. Then, 75% of the younger populations, GenZiers, and Millennials are most interested in tiny houses.
But why would they (or you) want to? Affordability is one reason. According to FORBES, the average cost of a tiny home is about $50,000, compared to a home sale price of almost $298,000.
A tiny home can save you a lot of money. Many tiny homeowners could pay for their homes outright. This is versus when buying traditional homeowners. In the latter, they might need to pay home mortgage, usually for 15 or 30 years.
Those who want to live in tiny home communities and join the tiny home movement look for financing. There are different options if they cannot pay for a compact home outright or get a mortgage for it.
Through personal or unsecured loans: Lenders won’t ask for or hold collateral if you default. You can repay a personal loan for up to seven years. These loans may fund all or only a part of the total cost of the tiny house.
RV loans are available for tiny homeowners: This is suitable if you do not plan to build a small house on a permanent foundation for mobility needs. These loans may be available through a credit union, bank, or online lender.
Through financing from home builders or contractors: They may help you obtain a tiny home financing, some build these homes and offer buyer loans for a little home.
These are only a few financing options available for tiny homeowner aspirants.
Housing Bubble: The Final Thoughts
The South’s housing bubble can flatten anytime soon. This can be because of factors, including rising mortgage rates. Homeowners seeking an alternative to meet their housing needs seek a solution like tiny homes. They are more affordable, with many being able to pay one outright. Financing options are also available for those who cannot get a regular mortgage for them.