3 of the top 9 reasons that the real estate bubble is now bursting

You must pay close consideration if you're contemplating purchasing or investing in real estate. This could be the most important message regarding your financial future as well as real estate.

Over the last five years, the real estate market has experienced explosive growth. This has led to many people believe that real estate can be the most safe investment. This is not true anymore. The market for real estate has seen an https://allpeople.com/nan+m+wessel_coldwell-banker-res-brokerage_2317p-us explosive increase in real estate prices which has led to unprecedented price hikes. The increasing number of people worried about the real estate bubble means there are less buyers for real estate. The lack of buyers results in prices falling.

Federal Reserve Board Governor Susan Blies declared on May 4 April, 2006 that "Housing is actually kind of peaked". This follows Ben Bernanke, new Fed Chairman, said is concerned about the economic implications of a "softening" real market for real estate. The market for real estate was described by Alan Greenspan, former Fed Chairman as "frothy." The top financial experts agree that there is a real market downturn, and there is no need to understand the motives of this change.

The following are the top 9 reasons why the real estate bubble might pop:

1. Interest rates are rising - foreclosures are up 72%!

2. First-time homebuyers get price-tag out of the market.

3. The market is now frightened of the collapse of the bubble, and the psychology of the market has changed. The mania over real estate is over!

A rise in interest rates is the primary reason why the real estate bubble is about to burst. Between June 2003 and June 2004, interest rates hit an all-time low under Alan Greenspan. In the past, low interest rates allowed homeowners to purchase homes at greater cost than they would otherwise be able to afford. However, the cost of a monthly mortgage was affordable. This led to "free cash". However, the time of low interest rates has come to an end since rates of interest have been rising and will continue to increase. Because of rising costs for food and fuel and food prices, interest rates have to increase to keep up with inflation. A higher interest rate can make it more expensive to buy a house, which will drive down the value of existing homes.

In addition, higher interest rates are affected by those who bought adjustable mortgages (ARMs). Adjustable mortgages come with very low interest rates and minimal monthly payments for the first two to three years, but after that the low interest rate disappears and the monthly mortgage payment jumps dramatically. In the wake of variable mortgage rate resets foreclosures on homes in the 1st quarter of 2006 are up 72% over the 1st quarter of 2005.

The foreclosure problem will only worsen as interest rates continue to increase and more mortgage payments that are adjustable are adjusted to a higher interest rate as well as a greater mortgage payments. Moody's reported that 25% of outstanding mortgages are set for interest rate resets during 2006 and 2007. This is $2 trillion in U.S. mortgage debt. This will be a huge burden on your wallet if monthly payments go up. A study done by one of the country's most renowned title insurers found that 1.4 million households could face an increase of 50 percent or more when the initial payment period has come ended.

The other reason that the bubble in real estate is burst is that new homebuyers are no longer able to purchase houses due to high costs and increased interest rates. The market for real estate is basically a pyramid scheme and as long as the amount of buyers increases, everything is fine. When homes are bought by first-time buyers in the bottom end of the pyramid, funds for that $100,000.00 house goes all the way up the pyramid to the buyer and seller of a $1,000,000.00 house as buyers sell one home and buy the most expensive home. The high cost of real estate coupled with higher interest rates has put off many prospective buyers. Now we are beginning to observe the negative impacts of this double-edged weapon on the overall realty market. The slowdown in sales is partially offset by an increase in inventory of homes for sale. According to the most recent report on the housing market, new home sales decreased 10.5 percent in February. This is the ninth highest one-month decrease in the last nine years.

The mindset of the real estate market has changed, which is the third reason for why the real estate bubble has burst. In the past five years, the real estate market has seen a dramatic increase and if you invested in real estate, you probably made more money than you expected. This positive result for so many investors helped propel the market as more people realized this, and decided to also invest in real estate , before they "missed out".

The psychological basis behind any market that is a bubble, whether real estate or the stock markets, is referred to as "herd mentality". It refers to the notion that everyone follows the same herd. The herd mentality is at the core of every bubble. It's been observed numerous times before, including the US market bubble that erupted in the latter part of 1990, Japan's real estate bubble in the 1980's, as well as the US railway bubble in the 1870's. The herd mindset was dominating in the real estate industry until recently.

So long as there are "greater fools" willing to buy homes at higher rates The bubble will continue to grow. The mania fades as there are fewer "greater fools" in a position to invest in homes. The hysteria is gone and the inventory overflow which was constructed during the boom can cause prices to fall. This is the case for all of the past bubbles that are mentioned as well as many more examples. Also of importance to note is that after the three historical bubbles burst the US was thrown into recession.

In the wake of the shift in thinking in relation to the real estate market, both investors and speculators are becoming concerned that they will be left holding real estate which could result in losing money. This has resulted in them not just purchasing less real properties, but also to sell their investments. The result is a flood of new homes being constructed which has led to many homes to go on the market. These two increasing supply forces and the growing supply of existing homes to be sold and the increase in the number of new homes for sale could further increase the difficulty and force all property values down.

A recent study found that 77% of people believe the real estate bubble will end before April 2007. This is the reason for the real estate bubble is now coming to an end.

The global economy will be extremely affected by the aftermath caused by the bubble's collapse. George Soros, a billionaire investor, has predicted that the US will be in recession by 2007. I agree with the statement of. I believe we'll be in a recession due to the bubble in real estate bursts and jobs disappear, Americans will no longer be able cash out funds from their homes and the entire economy will experience a slowdown, creating a recession.

A rise in interest rates is the primary reason why the real estate bubble is burst. New buyers are priced out of the market. And, there is an alteration in the mindset about the real estate market. The ebook, "How to prosper in an ever-changing real estate market" was recently published. The items are safe from the bursting bubble by clicking here.