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Big Housing Market Bubble “Pop” Imminent – Already Happening in Key Markets The U.S. has enough bumps on the road with mortgages following a similar script to 2008, the unwinding of QE, and the slowly rising “Goldilocks Economy” that’s about to have a hangover. Well strap in, because housing sales in key markets are all signaling the imminent deflation of a massive housing bubble. And the dangerous thing about this kind of bubble popping is that the effects can last for decades. The U.S. just went through a long period of low interest rates that fueled demand for housing and inflated housing prices. But that ride is over. Now we watch as mortgage rates rise to levels not seen since the 2008-09 recession. And this time is dangerously different than a decade ago. Paul Kupiec from the Wall Street Journal highlights the history:
But it’s 2018, and housing prices haven’t just gone up. In key markets, they’ve skyrocketed. Take Southern California for instance. CNBC reports the rather dramatic year-over-year increase of 7.3% in the median home price, now $536,250. Big ticket home sales of $1 million or more are in stagnation, and overall house and condo sales fell 11.8% last month as prices soared. A CoreLogic report detailed by CNBC spells it out:
Naturally, if home sales continue to decline at this pace, median prices will fall dramatically. And similar patterns are happening elsewhere. What Started in Southern California is Spreading Like a Virus In the Seattle, Washington area, a rapidly inflating housing market may be getting set to crash, according to Jerry Martin, President of Washington Realtors from another CNBC report:
The same report mentioned a sparse 2 – 3 weeks worth of housing inventory to meet technology-industry driven demand. Ideally, agents like to see 3 – 6 months of housing inventory. That keeps home prices rising, and in Seattle they are up 13 percent over last year. But Martin displayed concern about U.S. trade tariffs and rising rates as factors that could “pop” the Seattle housing market when combined with the rapidly rising prices:
So Seattle might be in a “sweet spot” now, but they seem to be straining to keep it. And this housing bubble inflation isn’t limited to the West Coast… According to CoreLogic, nearly half of the top 50 markets across the country are overvalued. Frank Martell, President and CEO, anticipates trouble in 2019:
So, rising rates? Check. Overvalued homes across the U.S.? Check. Dropping personal income to pay back inflated mortgage payments? Check. Those are all pins, and once the demand drops as people are pushed out of these major markets, the next sound you’ll hear is “Pop!” Make Sure Your Portfolio isn’t a “House of Cards”These are interesting times indeed. As the market correction continues into 2019 we will see just how inflated this housing market is. Until then, you can get started by hedging your bets. Precious metals can help. Start protecting your savings now, and make sure your portfolio is in a solid position.
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