The Biggest Gamble of Your Life - When you Buy…
Are We Headed for a Real Estate Crash in 2017?
Those aren’t mountains in these charts below. But they could depict an upcoming avalanche of foreclosures according to some experts. If you’ve purchased a pricey home or condo, or you’re considering buying a property in the overheated Los Angeles housing market, San Francisco housing market or those in New York, Seattle, San Jose, Los Angeles, Portland, Austin, Houston, Charlotte, Miami, Dallas, or other hot real estate markets, you’re likely feeling some nerves of late.
The turbulence of the election, rising interest rates against overheated housing markets does give some plausibility to a US housing crash in 2017. Proponents of an upcoming crash point to too many Americans living lavish lifestyles, still buying expensive foreign luxury cars on a $40,000 salary, sitting on over-leveraged monster mortgages.
In San Francisco, the risk of a bubble burst in 2017 is highest and that city is ranked number 1 as highest for a crash. Prices in the San Francisco Bay area housing market are extremely high and if the tech sector does have an extended downtick with rising mortgage rates, perhaps the forecasted slide could start.
From a report in AOL.com here are the top ten US Cities most likely to experience a crash:
- Portland, Oregon
- Charleston, SC
- Buffalo, NY
- Fresno, CA
- Los Angeles, CA
- Dallas, TX
- Salt Lake City, UT
- Austin, TX
- San Jose, CA
- San Francisco, CA
Interesting list, dominated by California and Texas, which have been doing well economically. With oil prices rising, I wonder if that will calm the situation in Dallas and Houston?
Tyler Durden of zerohedge.com discusses in a post how homeowners are burdened in debt and unable to refinance their mortgages. He points to his key statistic that mortgage owners will not be refinancing their mortgages in 2017 which points in the direction of bubble bursts and crashes.
This chart below paints a very scary picture, that it’s worse than 2006. Not only does it correlate 2017 with 2006, it shows that we’re up high on a dangerous cliff in some cities. However, most cities aren’t in this situation, so if a collapse in California, New York and Texas were to occur, other cities might survive okay.
There are other mitigating factors too such as the strengths in the economy, foreign investors buying property, and rising optimism and confidence since Trump won the election. And he isn’t in office yet. At this point, we’re wondering if Obama and Clinton are relieved not to have to face the mess they created? Trump seems to be up to the task and yet, he has purportedly said he would enjoy watching the crash, even if it takes down some of his real estate empire.
The cost and availability of credit provide fuel for a bubble to inflate, inviting even less experienced, or less credit-worthy players into the game, all of whom believe they will sell their recently purchased assets at ever-increasing prices — from a CNBC post.
That credit is being freed up in 2017, but will it fast enough to create huge instability if mortgage rates don’t rise precipitously? Here’s Seattlebubble’s reasoning on why we may not be in a housing bubble/crash situation:
- still lots of all-cash buyers, with few zero-down buyers
- no crazy neg-am, fog-a-mirror, interest-only home loans like last time
- interest rates remaining low
- affordability index not as bad
- buyers and lenders more cautious
Home prices aren’t as high as they were in 2006/2007 and mortgage rates are much lower:
Graphic courtesy of the Wall Street Journal and NAR
No one will dispute that there are big risks but for 2017, everything looks to be under control.
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Disclaimer: this post/information is meant as a discussion of housing and investing issues, ideas and trends, not as advice for investment. Please use good judgement and professional advice if you’re investing in any market whether stocks or real estate.