The housing market bubble that developed in 2000 caused a traumatic effect on the housing market that has taken a long time to rebound from. Simply put, prices for homes climbed at such a dramatic rate that it was unsustainable. When it “burst” it sent home values plummeting and everyone running for cover. The housing market is showing warning signs that it might happen again, but on a lesser scale.
Huge Increase in Home Prices
Home prices have been on a steady remarkable rise, but not at the alarming rates of 2000-2005. It still creates the possibility of a housing market bubble since the economy is still recovering form the Wall Street induced recession. New home construction is not seeing the same rise as existing structures, which could indicate that the housing market is still in a state of recuperation rather than recovery. The warning signs are in place, but if prices moderate, it might signal a quick rebound rather than a dreaded bubble.
Investor Driven Market
The housing meltdown lead to unprecedented numbers of foreclosed homes. These homes left the market almost as quickly as they arrived. One would think that families took advantage of the lower prices, but many have ended up in the buy-fix-and-flip housing game. They are often bought, sold and traded like sports memorabilia cards by investors. They are bought at a low price, minimal fixes done and sold for a larger profit. It very well could explain the reason for the recent surge in home prices. The fact is, until families start buying up the homes again, there could very well be another housing market bubble.
SubPrime Loan Frenzy
There has been a flurry of activity to purchase homes using subprime loans. Lenders have had to try and get mortgage customers any way possible. This means lending to those in a higher risk group. If the value of homes keep spiking upwards and then make a sudden drop, you could very well see another housing market bubble that bursts. Much of it will depend on drawing in single family home buyers and keeping interests rates stabilized. There’s little chance of reducing the subprime loan frenzy since it’s the easiest way for people with credit issues to get a mortgage, but perhaps the lessons learned from the last housing market bubble will hold. Mortgage lenders are using more diligence in educating the customer base about the wisdom of using the subprime mortgage to eventually catapult to a standard 30-year home loan.
Time will tell if there truly is a housing market bubble developing. The prices for homes have increased at a fast pace, but you have to remember that the prices are coming up from very low numbers that were hit after the last bubble burst in 2005-2006. It could be that the market is simply correcting itself. The good news is that housing prices are up and the market is on the move. Only time will tell if prices head in a direction and level that is unsustainable, once again.