Home prices are rising near the levels of the housing market just before the crash, causing consumers to question whether we're in some kind of housing bubble. Realtor.com presents a few things that home buyers should know if they're worried about a housing bubble.
1. The overall economy: Unemployment is low, wage growth is strong and the tech sector is hiring in droves. The Federal Reserve raised interest rates last December, and they’re likely to raise rates again in the near future as the economy continues to grow and evolve.
2. Mortgage requirements: Despite what many will tell you, getting a mortgage can be intense. It requires full documentation, including tax returns, pay stubs, letters of explanation and thorough due diligence. As long as strong requirements remain in place to secure financing, one thing is for sure: A financial collapse, if it does happen, likely won’t spawn from abusive lending practices.
3. Housing risks: Let’s say you’re putting off buying a home because you’re worried about another financial crisis. If that’s the case, you need to define what it is that you are most concerned about. If you’re concerned about your job and the future of your income, that should play a bigger role in whether you buy a home.
4. The market itself: Ultra-low mortgage rates have been around for the last few years, so at some point interest rates have to go up. The question is when. If you’re trying to purchase a home and you are qualified at a 3.625% 30-year fixed rate, for example, and interest rates rise to 4.375%, you may not be able to qualify for as much house.
Rising rates also means fewer mortgage loan originations, which means profitability in the secondary market diminishes. The only way to keep profitability going is to keep the engine running with new loan originations, and the only way to do that in a higher interest rate environment is with less restrictive underwriting.