To elaborate, the bubble bursts overnight because of some sudden economic or political development. The first worst-case scenario is a sudden catastrophic collapse. I think there are three probable outcomes to the US housing bubble. Housing bubbles can end in several ways, but all the potential outcomes are bad. The asking price is so high because the seller needs to pay off a huge mortgage. In 2008, thousands of people walked away from underwater mortgages, leaving neighborhoods full of empty homes.Īnother housing bubble nightmare is enormous amounts of “zombie properties.” A zombie property is a piece of real estate that never sells because the asking price far exceeds the market. Hence, one result of a housing bubble could be hundreds of thousands or millions of homes nobody can sell. Many of us remember the epidemic of underwater mortgages during the Financial Crisis of 2008. Underwater is real-estate industry slang for a mortgage the home’s sales price cannot cover. The buyer will have a mortgage that is $250,000 or $300,000 underwater. If the real estate bubble bursts in 2023 and the house price falls to $250,000 or $300,000. Hence, buyers are overconfident, which drives them to make poor decisions.įor example, a homebuyer could take out a $500,000 mortgage to buy a home in 2022. Hence, pure emotion could drive the boom around than market fundamentals. To elaborate, exuberance and overconfidence motivate people to pay high prices because they believe prices will keep rising.įrighteningly, the Dallas Fed’s exuberance indicator for the real estate market is over 95%. He pays almost $500,000 for the average house.Īsset bubbles are dangerous because emotion drives them. Instead, I believe most houses in the United States are not worth almost half a million dollars. That means housing prices exceed the true value of homes.įor example, average sales price of a house in the US was $477,900 in the fourth quarter of 2021, the St. house prices are again becoming unhinged from fundamentals,” the Federal Reserve Bank of Dallas observes. The Federal Reserve is issuing warnings about a housing bubble.
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