Today’s market may seem to be improving: distressed sales are down, home prices are up and less needs to be saved to make a down payment, but could these factors ultimately lead to the next housing crisis?
Some believe the market may be on the verge of another crisis as it seems to be showing the same signs as were seen in 2005 to 2007, according to an article by Michael Brush for MarketWatch.
One of the major factors is the high price for smaller homes, according to the article. In New York, a small tool shed was sold for $500,000 in Brooklyn.
From the article:
Here are some other troubling anecdotal signals on the housing market:
1. A major financial website recently ran a guide to the best cities to “flip” houses in. (I don’t want to encourage the behavior.) Real estate speculation via house “flipping” was another early sign of trouble ahead.
2. A few days later, news arrived that home prices in the Bronx had shot up by an astonishing 30% in the first quarter. Crazy advances in home values were, a decade ago, also a signal of trouble ahead.
3. Ads, then as now, were running on TV for “quick mortgages.”
All of these signals raise a serious question: Are we getting closer to another housing meltdown that will once again damage your investment portfolio?
Back in February, Bank of America unveiled a new affordable mortgage program that offers consumers the option of putting as little as 3% down and requires no mortgage insurance.
Banks are taking less down, but homebuyers are also paying more in monthly mortgage payments, according to the article, and incomes are not increasing at the same rate.
While some applaud the idea of providing the option to pay less down on a home, could it be a factor that is causing the next recession, and is that recession closer than we think?