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At the moment, the US housing market is having a good run. This is largely attributed to the fact that the demand for properties is increasing, yet the number of homes available for sale has remained largely scarce.
Despite good performance in the past few years, players in the housing market shouldn’t be complacent. This is because a lot of the factors that led to the housing market crash that happened in 2008 are slowly starting to crop up again.
Factors that led to the 2008 crash
A key factor that led to the bursting of the housing bubble back in 2008 was the existence of subprime mortgages. In an effort to stimulate the market, Fannie Mae and Freddie Mac adopted looser lending requirements. They did this in order to increase the pool of buying customers.
Unfortunately this meant that interested parties with low credit scores or insufficient savings were able to buy houses that they could not have been able to afford otherwise.
This led to an increase in the number of homeowners with huge outstanding loans. Given their low credit scores and lack of finances, their homes were soon foreclosed. This then led to the market crash.
Weak wage growth
Given the increase in demand and the scarcity of inventories, it’s a given that the prices for properties would surge. What makes the housing market so susceptible to crashes is that buyers are usually unable to keep up with the rising prices of houses.
A weak wage growth means that consumers are more likely to reach out to banks and other financing outlets for loans. This means that the housing market is essentially running on money that isn’t actually owned by the consumers, thereby increasing the chances of it all falling apart once the debts catch up to the buyers.
Bleak future for 2020
The current socio-political climate, coupled with the disparity between costs and wages, is not giving consumers any confidence. Despite efforts to improve mortgage rates, house prices have dropped to a new low. This indicates that people aren’t as willing to buy homes, and in fact many Americans are renting homes rather than buying them.
Another reason why the housing market may once again experience a crash is because of household debt. With the increasing gap between costs and wages seeing no signs of narrowing any time soon, consumers are more and more reliant on loans. Auto loans and credit card loans are among the top sources for consumer debt. Any purchase made from loans is looking to be appraised as more of a liability than an asset.
The housing market crash may be inevitable, but there are still ways to protect oneself from the effects of the crash. Getting insurance from providers like Allstate Insurance can help insulate buyers from the crash. This is because while buyers are in the process of paying off their mortgage, they need to ensure the property is still in good condition, which is possible when a house is insured.
The future of the housing market remains bleak for the time being, but hopefully we will see a change in the market conditions that will prove that there won’t be a crash in the near future.
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