Housing Data Point Towards A Housing Market Bubble

The housing crisis of 2008 can trace its origins back to the stock market trends of the mid- to late 90 's. During a period of extended growth in the stock market, increased individual wealth among investors led to generalized increases in spending, including in the housing market. With more disposable income in the pockets of consumers, the demand for housing increased in the late 90 's. Due to the fact that homes are large projects and their construction takes a large amount of time, the supply of homes in the market is inelastic on the short term. Because of the fixed supply of homes, as per the law of supply, which

The housing crisis of the late 2000s rocked the economy and changed the landscape of the real estate business for years to come. Decades of people purchasing houses unfordable houses and properties with lenient loans policies led to a collective housing bubble. When the banking system faltered and the economy wilted, interest rates were raised, mortgages increased, and people lost their jobs amidst the chaos. This all culminated in tens of thousands of American losing their houses to foreclosures and short sales, as they could no longer afford the mortgage payments on their homes. The United States entered a recession and homeownership no longer appeared to be a feasible goal as many questioned whether the country could continue to support a middle-class. Former home owners became renters and in some cases homeless as the American Dream was delayed with no foreseeable return. While the future of the economy looked bleak, conditions gradually improved. American citizens regained their jobs, the United States government bailed out the banking industry, and regulations were put in place to deter such events as the mortgage crash from ever taking place again. The path to homeowner ship has been forever altered, as loans in general are now more difficult to acquire and can be accompanied by a substantial down payment.

With the consistent increase of property prices and more personal debt than ever before, we assume that there’s a housing bubble in Australia. The statistics show that from 2008 till now, property prices have been going up as a result of increased mortgage debt. When it slows down, that could cause a property crash. We are sure that there’s a housing bubble, but we cannot confirm when it will finally burst although a few area in Australia has already met a decrease of house prices. There are 3 indicators of the housing bubble in Australia.

Post-housing/financial crisis of 2007-2009, the housing market seems to be showing signs of improvement after great downturn. With the downturn in housing prices, many homeowners did not have enough equity to avoid taking a loss on the sale of their homes so they are sitting with home loans based off of higher-than-current mortgages. However, in November the National Association of Home Builders’ sentiment index jumped to 20, which is the highest reading in over a year. Demand for mortgages has also seemed to pick up a bit according to the Fed’s 4th quarter loan survey. Construction remains at historically low levels but has increased as of late, and the number of

First, the housing market is starting to come back to business, but it is taking some time.

In 2007, the U.S. fell into a deep financial recession. One of the main causes of this was the bursting of the housing bubble, which lead to a housing crisis. What is a housing bubble? A housing bubble is defined as “a temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices” (businessdictionary.com 2014). When the bubble bursts, the result is a quick decline in home prices (businessdictionary.com 2014).

Macroeconomics is an excellent tool for the analysis of the housing industry as something like a capital good, as a home is considered to be, cannot easily be studied in a short-term platform. Real estate is a good that costs several times more than an average persons annual income, in the United States that number is typically 7 times as much, and in the United Kingdom that number is 14 times as much. Several factors of both supply and demand directly impact the housing market on a macroeconomic scale. (Business Economics, 1)

Nick Vertucci, a real estate expert, has spent years educating himself about the housing industry. He predicts that a tipping point

It seems hard to believe that over ten years have elapsed since the peak of the US housing market in the previous economic expansion. Residential construction as a percentage of real GDP reached a zenith of 6.2% in 2005 Q3. The ensuing contraction saw this share decline -60% to trough at 2.5% of GDP in 2010 Q3. The current economic expansion began in 2009 Q3, but the sheer magnitude of the collapse made it virtually impossible for any subsequent housing recovery to impart the same outsized contributions to headline GDP growth compared to the previous cycle. This has consequently played a significant role in restricting the ability of the economy to shift into a higher gear of growth during the current

What have you always been told whenever you get into some money or a new job? “Housing is always the best investment.” If you have been told this, you have been told a lie. (TruTV) Housing was thought to have been a rock solid industry for decades, but that all changed in 2007. As showed by Paramount Pictures movie “The Big Short” shows very entertainingly how banks and regulation have made America 's housing market into a system of fraud and theft by big banks. “But that 's in the past” some may say, but as former housing market crash investor and former owner of Multimillion dollar investing firm Michael J. Burry stated, “Today 's economy is showing telltale signs of repeating the mistakes made in the 2007 crash.” (Michael Burry Blog) An analysis of the housing market of today will reveal many signs of an inevitable crash such as: the minimum wage fallacy, The prices of housing rising, the government supporting bad loans, and why the government cannot stop it.

For the past several years, the housing market has been mutually beneficial for both buyer and seller. The cost of real estate has risen but has maintained or gained value. People who have owned their home for quite awhile are seeing astronomical amounts of money to be made off the sale of their home, and so the market has been inundated with housing for sale. It leads us to wonder whether this boom is heading for the crash. Is now still a good time to buy? If so, what type of property will continue to gain value? Will new buyers end up stuck in their home as the value drops? As a homeowner, I am nervous about the state of the real estate market. This is not the house my family wants to call its home forever, but could we get stuck here? Yes, we could. If the housing market drops, then so will the amount of money we could potentially make off the sale of this house. If it drops enough then it would be possible to end up owing money upon the sale. Unless you are independently wealthy, you hope to make money off the sale of the home to help finance the purchase of the next home. Real estate agents will tell you that now is still a good time to buy. While it is speculated that the market will drop within the next year or two, if you are willing to sit on your new purchase for several years, an upswing will occur again. There is never any guarantee that you will recoup the money paid for and put into a home. If you intend to purchase a home soon, it would be a good idea to

Around 2006 the price of houses began to fall substantially fast. “The oversupply of houses and lack of buyers pushed the house prices down until they really plunged in the late 2006 and early 2007” (The Subprime Mortgage Crisis Explained). These actions threw investors into a big dilemma. In the beginning they believed buying the mortgages would bring them a profit, but quickly realized that the mortgages would cost them more financial damage than reselling the homes. “Nationwide, home vales have declined about 16% since the summer of 2006 and experts project that the drop will continue until homes have lost about 25% of their value” (Biroonak, 2008). In other words mortgage homes are “underwater”, that is, the mortgage owed equals or exceeds the value of the house (Biroonak, 2008). Investors and homeowners started to go more in debt trying to pay off their original debts.

This is not the case in all areas of the United States. In some still coveted areas, the supply of home has not exceeded the demand and the housing values have stayed the same or even appreciated. For the most part, however, the residential real estate market has crashed. States such as Florida, California and Nevada have an influx of

According to Wikipedia a housing bubble is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline. Four years into the housing bubble downturn, much of the country remains hopelessly confused about what happened, why it happened and who is to blame. In my research paper I will try and demonstrate what a housing bubble is, some of the reasons for the bubble, was it preventable, how it kept growing, how it burst and how it has affected our economy.

Following this overview of the pre-crisis housing dynamics, we explore post-crisis market movements and regulatory responses to the potential emergence of a real estate bubble. The paper concludes with the open question of whether recent price increases are sustainable and could indicate an inflection point that would require additional restrictive action from the Bundesbank.