The demand for real estate is at a fever pitch. As housing prices continue to rise, many wonder if the real estate market is going to crash. While no one can predict the future, here are the top 5 warning signs of a potential real estate correction (or crash) to watch out for.
1. Rising Interest Rates
A sudden rise in interest rates can make home loans more expensive, which could reduce the number of homes being built. In turn, this could decrease the supply of homes on the market. However, in April, the Federal Reserve maintained a 0% to .25% target for the federal funds rate. For the time being, the Fed has decided to keep short-term interest rates near zero, which is a positive sign for the housing market.
2. Tax Code Changes
According to some, the proposed plan by President Joe Biden to abolish tax breaks for real estate investors could have a major impact on the housing market. The plan would eliminate the ability to defer specified tax payments on property-investment gains of over $500,000. Many fear removing this tax break (also known as like-kind or “1031” exchange) would cause real-estate investment to decrease, property prices to plummet and rents to rise.
3. Increased House Flipping
“House flipping” is defined as buying, renovating and selling a house within 12 months. House flipping decreased in 2020, totaling 5.1% of all home sales in the third quarter of 2020, compared to 6.7% of sales in the second quarter of 2020. This decline is a sign of deceased inventory of available housing. In 2006, house flipping accounted for 11.4% of home sales. It is believed by many an increase in house flipping is a sign of an impending housing crash.
4. Bubbles Burst
Many crashes occur after bubbles burst in various sectors of the economy. Currently, there are several potential bubbles to watch out for:
- Stock market
- Bond market
- Home sales
Trouble in either of these areas could cause a chain reaction that could impact the housing market.
5. Banks Start Using Derivatives Again
The use of risky financial products such as mortgage-backed securities (MBS) was a big reason the housing market collapsed in 2007. Millions of dollars in loans were given to many home buyers who should not have been approved n=because they weren’t qualified. When these borrowers defaulted the burden was too much for the housing market causing it to crash.
Bonus Signal: Reduction in Affordable Housing
If the availability of affordable housing decreases, that’s a potential sign of a housing bubble and Alamo CA real estate crash. This occurs when income growth is slower than housing growth.
Putting It All Together
No one knows the future but studying history can be a great way to predict what could happen next. Each of the events described here are a great way to gauge the Alamo CA real estate market. By paying close attention to the trends, you could be better prepared for whatever the future holds.
Are you looking to buy or sell your property in East Bay? Need help determining your next move? Here at Range Homes we have a team of motivated agents dedicated to putting your needs first. Our mission is to get you the best deals & offers, and help you buy (or sell) your home. For assistance with your real estate transactions during these challenging times, Range Homes is here to help. Reach out to our team today by clicking HERE.
Housing inventories are at record lows in the United States, declining nearly 40% on a national level in 2020. In this article, we’ll discuss the reasons for the decline and future expectations for the housing market.
Why East Bay CA?
East Bay CA is known for it's good economy, beautiful landscapes and extremely popular housing market. When other states and territories have experienced decline in housing prices the Bay Area in general has remained strong. This doesn't mean you should not diversify your portfolio across many states, but East Bay CA Real Estate is certainly a strong place to start for a novice investor. There are even some great low cost homes that are ripe for renovation.
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