3 Signs the Next Real Estate Crash is Coming

Home prices still haven’t reached the peak of the last housing boom, but some experts predict the next real estate crash is on its way. While there’s no guarantee the market will crash anytime soon, real estate agents and other professionals in the industry should be wary and watchful for the signs of an impending crash. Here are 3 of these signs that already have experts on edge.

Today’s Home Prices Are Fueled by Lack of Supply

Nationally, home prices are clearly rising, which is just one of the market predictions we made for 2017. In some markets, home prices have already surpassed where they were prior to the last housing crash. Unfortunately, this pricing resurgence might be a sign of a housing bubble, not a sign of recovery.

The reason for this is that today’s housing prices are fueled by a lack of supply rather than high demand. Builders aren’t building, and the average family isn’t able to outbid foreign or institutional all-cash buyers on properties in their market. If these unorthodox investors lose interest in the US housing market, there simply won’t be enough traditional demand to justify high home prices.

Salaries Aren’t Rising Fast Enough for the Average American

A home is one of the largest purchases the average American will make, and Americans in many markets these days simply aren’t making enough money to afford the purchase of property. Unless home prices come down, demand for property from local buyers is unlikely to increase.

Luckily, lenders are more careful now than they were before the last housing crash, so it’s harder for people to purchase properties they simply can’t afford. If this changes, or if interest rates dip lower, people may wind up with mortgages they can’t pay. As a result, foreclosure rates may spike yet again.

Rising Interest Rates Could Also Cause a Real Estate Crash

Vastly lower interest rates would be bad for the market at large, but higher interest rates could be devastating; they would kill the already dwindling demand for property in markets around the country.

While interest rates are still a far cry from the historical high for a 30-year mortgage, mortgage rates are expected to rise this year. If rates do rise as expected, even if only a little, millennials could be discouraged. After all, they have grown accustomed to historically low rates.

How You Can Help Avert the Next Real Estate Crash

As a real estate agent, there are ways you can help avert, or at least delay, the next housing crash. Firstly, make sure you’re educating first-time home buyers. Ensure they understand the importance of buying within their means, especially when they’re making low down payments.

 

Secondly, if you plan on working with real estate investors, you absolutely should ensure they’re aware of the risks involved with purchasing investment property. Provide these clients with the information they need to make a smart investment, even if it costs you a commission. Since one bad property investment has the potential to ruin a client financially, especially in the event of a real estate crash, you need to handle investors with extreme caution.

Pat Hiban is the author of NYT best selling book “6 steps to 7 figures – A Real Estate Professional’s Guide to Building Wealth and Creating Your Destiny”, founder of Rebus University and the host of Pat Hiban Interviews Real Estate Rockstars an Agent to Agent Real Estate Radio Podcast with Hiban Digital in Baltimore, Maryland. Follow him on Facebook or Twitter.