Home Speculators at Hard at Work
Are Housing Speculators Driving up Home Prices?
When is the next housing market crash? No one seems to be able to agree on when it’s likely to happen. But, we all can agree on one thing: it’s coming.
Is it really coming, though? Read on to find out.
The housing market has been up for a very long time. It seems like home prices keep climbing higher and higher. At the same time, it seems like mortgage rates keep dropping lower and lower.
Consumer confidence in the housing market is at an all-time high. Mortgages for Champions has been able to help more homeowners this year than ever before.
Sellers have no doubt they can get exactly what they’re asking for their house. In most cases, they can even hold out for more than the house is worth.
But, what is driving this massive increase in home prices? What is the housing market forecast for the coming year? A lot of Americans feel like housing speculation is the culprit driving our home prices through the roof.
If you’re looking to buy or sell a home in 2022, this article is for you. We’re going to take a look at where you can expect home prices to go and what home speculation has to do with it all.
Let’s get started.
What We Expected
The last 12 to 18 months have been unprecedented to say the least. The COVID-19 pandemic forced the closure of millions of businesses throughout the country. Some businesses were able to weather the storm. But others didn’t survive.
All of the failing businesses had many investors waiting to pick up properties. Speculators felt like the economic problems caused by the pandemic would result in some great real estate deals. As we all know now, the exact opposite happened.
The pandemic actually made the real estate market move in the opposite direction of our expectations. COVID-19, and the changes it brought to life as we know it, only increased demand for real estate. In fact, home prices have risen another 20% over the past 12 months.
Home prices that rise at this rate have a lot of people feeling like we’re in 2007-2008 crash conditions again. People are waiting for the “bubble to burst.”
What’s Actually Happening to Home Prices
Experts in the real estate field have the exact opposite feeling. They don’t see this market as a bubble. Many real estate media outlets predict that approximately 6 million homes may be sold in 2022.
If 6 million homes are sold during 2022, that would be the most home sales since 2006, the year before the housing crash started. On the surface, it looks like another downtrend is just around the corner. But, most experts feel things are different this time around.
What Caused the First Crash?
In 2008, the real estate market crash was caused by a phenomenon known as subprime lending. Mortgages were given to millions of homeowners that couldn’t afford them. If you watch the movie the Big Short, you’ll also see other types of fraud that were occurring during this market.
Variable interest rates, low down payment loans, and loans with very lax underwriting requirements all contributed to the problem. Something needed to be done.
After that lending crisis occurred, financial lawmakers put their heads together to make sure it never happened again. Legislation like Dodd-Frank was put in place to make sure the fundamentals of the American lending process were sound. Risky mortgages with high, variable interest rates and mortgages to borrowers with poor credit became a thing of the past.
These mortgages became known as “subprime” mortgages and they made up about 20% of the mortgage market in 2006.
What’s Causing This Trend?
The good news is, lawmakers’ efforts have paid off. There doesn’t seem to be another bubble in sight. At least not for right now. Experts believe the cause of the rise in home prices is different this time around.
Lending isn’t the problem anymore. Subprime mortgages currently only make up 1% of the mortgage market. The legislation put in place has made great strides in creating solid, ethical lending practices.
Its true homes are rising. We mentioned earlier that they’ve gone up 20% in the past 12 months. But, this time around that rise isn’t due to poor lending practices. It’s due to low inventory and high demand.
This is good news because supply and demand are the basic principles of economics. That means the health of this market, and the high home prices, are occurring naturally.
What’s fueling these market conditions? Many cite the “new normal” brought on by the pandemic. With the Omicron variant starting to emerge, we’ll be on our third major COVID variant.
As a result, economic experts believe the effects of COVID-19 on the market will be long-lasting.
Newcomers to the Market
In addition to COVID, there’s also a new buying phenomenon in the marketplace. We’re seeing a new generation of home buyers come into the market, apply for mortgages, and buy homes.
Millennials have been buying homes throughout the rebound from the housing crisis. We’re not saying that they are just now entering the housing market. But, what we are seeing now is millennials buying homes at the same rate as previous generations.
Americans between 25 and 40 are finally achieving the American Dream at the same rate as their parents and grandparents. If you’re wondering why this age group is entering the housing market a little late, it’s because of the real estate crash.
The housing and job market of 2008-2009 prevented a lot of millennials from buying their first home. Overall, lending and borrowing slowed to a crawl as mortgage professionals and financial experts figured out the lending crisis mentioned above.
In addition to that, Millennials couldn’t find entry-level jobs at that time in America. Most companies had nationwide hiring freezes. The lack of income prevented Americans in this age bracket from amassing any sort of savings for a down payment on a house.
The Millennial Effect on Housing Inventory
Naturally, this went on to affect the housing inventory. If people can’t afford houses, developers don’t build them.
Experts in the field say that between 2008 and 2013 there were 6 million homes scheduled to be built. Sadly, developers never broke ground on any of these homes because of the economic environment.
Currently, millennials represent the lowest percentage of homeowners in America. But, despite being the lowest, they’re the fastest-growing segment of the housing market.
It took a while, but millennial home buyers are finally here. And they’re helping spur on the high times of our current U.S. Economy.
Is Housing Speculation Affecting Home Prices?
Based on the above evidence, we would say no. The rise in home prices we’re seeing in the current market has nothing to do with home speculation. That’s a good thing.
Too much investment activity in the market is what causes artificial inflation and bubbles. What we’re seeing today is more of a “steady climb” in housing prices. This is all thanks to more stable lending practices and the natural forces of the economy.
Financial professionals believe that this demand in housing was always coming. Millennials make up a large portion of the population. Unfortunately, income levels and economic conditions prevented them from buying houses previously.
Eventually, millennials would’ve been able to purchase homes. But, low mortgage rates and housing demand due to COVID have sped up the process significantly.
What to Expect in the Future
According to what real estate experts see, this market won’t slow down anytime soon. One statistic predicts that approximately 5 million mortgages will be originated in 2022. Home prices are also expected to continue rising.
If the current trend continues, we could see home prices rise somewhere between 5% and 13% over the coming year. This is great news for the health of the market.
These increased prices may make entering the market difficult for first-time homebuyers. But our team at Mortgages for Champions is confident we can work something out.
There are plenty of incentives and programs first-time homebuyers can take advantage of. Couple these programs with the incredibly low mortgage rates, and we’re confident anyone interested in buying a home can achieve their dream.
The Time Is Now
As the evidence shows, home prices will only continue to rise. If you’re interested in buying a home at all, contact Mortgages for Champions today. Start your application process before the next spike in home prices.
It’s your turn to join the next wave of homebuyers. We hope this article serves as proof that the American Dream is still within reach for those who want it. Thanks for reading.
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