South San Francisco, CA May 21, 2018 by Chrissy Francis, Financial Advisor
Preparing For A Bursting Bubble
There is growing talk of there being a housing bubble that is about to burst, with a lot of focus being put on big cities like San Francisco. The national family home price is rising 32% higher than inflation(in 2005 when the last bubble burst it was 35%) and the prices have now far exceeded what they were then. Some experts are saying that houses are selling as fast as they can be built, indicating a stable market. In South City we are seeing controversial developments flooding the market with new homes. Can the market really sustain such continual rises in price? Can new buyers afford to come onto the ladder, or are we building developments that will lie vacant until the prices crash? What does the future hold for those who own a home in South City?
Why It May Be Coming
With the dollar remaining strong, the price of imports is considerably lower than those of domestic products. Analysts predict that it is only a matter of time before this leads to mass job losses, as domestic firms struggle to remain competitive. This is just one of many economic uncertain factors that could indicate a coming downturn. President Trump’s declaration that trade wars are good has terrified many on the market and set the stage for a potential crash that could spread to all sectors.
Basic Advice On Preparations
While it is true that interest rates still remain low and there are considerably fewer interest-only loans than at the last peak, it doesn’t hurt to prepare. It has been reported that many Americans are living at the edge of their means with expensive cars bought on credit, second mortgages taken out to pay for improvements (or lifestyle costs), and credit cards being taken to their limits. In the current climate of low interest loans, none of these things present any issues to households with reasonable earnings. Even if there is not a bubble about to burst, the current economic conditions cannot continue. Now, while things are stable, is the time to look into making changes. Credit cards need to be consolidated onto new cards offering transfer deals, and ideally fixed low rates. Now is not the time to take out new loans or to borrow against your home. It may look very tempting but remember that an interest rate rise from 4 to 5% for a mortgage taken out over 30 years will increase the cost of it by 12%. This is the ideal time to pay off any outstanding credit and look at ways to reduce your cost of living.
Advanced Advice For Homeowners
If you do not need to move then don’t. Although your home will sell for significantly more than you paid for it, the new one will cost considerably more too, and that is the mortgage you will be stuck with if things turn for the worse. Some may consider selling and moving into rented accommodation, hoping to capitalize on a downturn, if it happens. There is some sense in this, should a downturn arrive, but it is a very risky prospect. A far better idea is to negotiate a fixed term interest rate for your loan that you can afford. If the rate is within your means, you might miss out during times of low interest rates, such as now, but it will be a loss you can afford. If the bubble does burst and interest rates skyrocket you’ll be able to weather the storm far better than anyone else.
Is It Going To Happen?
Even the top supercomputers can’t say if the housing market is about to pop. Some experts say that it may resemble a bubble but that is only if looked at on the wrong scale. Observed properly, from a distance, they argue, it looks more like a steady climb. Many of the indicators of a crash simply are not there. Lenders are being considerably more ethical and financially wise in whom they lend to, new homes are being built to meet demand (and they are selling well), and the building materials market is performing very well. All in all, it is very difficult to predict the future for housing in South City. The best advice, for now, is to be cautious. Avoid overstretching yourself on credit, consolidate instead of taking new loans, and see if you can fix low rates to help if things do go wrong.
Chrissy Francis has spent a decade as a financial advisor and currently is an online Editor for an information and advice site. If you would like more information please contact Chrissy CLICK HERE