Monday, October 25, 2021

Is a housing crash on the horizon?

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Let’s hear the experts: Is a housing crash looming?

First, an overview.

Is a housing bubble on the horizon? We’ll get a variety of experts’ perspectives.

What are analysts and market observers saying? Much of the chatter is focused on the following themes:

First, rising interest rates have caused the mortgage market to reset and the reset has been very steep.

Interest rates have climbed sharply, setting up a rough patch ahead, economists say. They point to the situation in Sydney, Australia, where 40 percent of newly constructed homes have a rate of 6 percent or more, causing some builders to predict tens of thousands of units could sit vacant.

Even though new home sales rose 8.6 percent in January and housing construction continues to grow, conventional wisdom says all of that momentum will evaporate.

Secondly, real estate is most often viewed as an investment, not a necessity. More households are relying on such investment instruments as bonds or real estate investment trusts to supplement retirement plans. There has also been a massive shift in the age profile of households. Those headed by people over the age of 55 make up 45 percent of households and that’s up from 34 percent a decade ago.

Putting aside the financial and demographic factors, there is an underlying concern of a dearth of homebuyers in a market already flirting with record-high prices and interest rates.

A reader’s question today asks what might be responsible for the spike in interest rates and flat market? A reader writes:

“I need some advice on the highly unusual situation we are now in. I am 20, no job yet and have been looking for 2+ years. I have driven up the price of my home by 100 percent to get out of my current apartment to buy somewhere closer to work. Now my new level of success raises the price of everything that I have purchased on this leap.

“My parents have suggested I sell my home and trade the $150K for $125K in cash and still have my payments, 401(k) and other college expenses. I think this is insane.”

Other questions:

A reader worried about a potential housing bubble:

“I have a question about investing. I made the mistake of buying the Wall Street bubble that then deflated. I’m saving an extra $100,000 to eventually retire. I understand that I can’t invest on my own, but was wondering how long it would take to actually retire. I’ll need my nest egg to support myself and a family of five.”

Another reader cites no reason why the economy shouldn’t continue to grow:

“My question is, how long will I be able to retire? I’m starting to work at 66 years old after almost 40 years working. Will I ever retire? Will I ever reach my retirement goals? (Besides what a great question.”

Questions about auto sales?

“I’m almost 61, have eight trucks and four pickups. I live in a county in Montana that I’ve been in for 40 years. I own or lease all my cars. It makes me tired to have to sell my truck every six months or so. I’m considering investing in stocks now. Just wanted to see what other retirees think.”

Forget about stock market investing, blogger Bob Donelon writes today about his concerns about retirement. According to the IRS, as of 2011, anyone aged 59 ½ or older was eligible to withdraw $100,000 without a 10 percent penalty.

In 2013, Donelon writes, he decided to set up an IRA. Now he wonders if he made the right decision. His definition of investing runs the gamut from funds to riskier investments, but one thing stands out:

“Worst part, I’m also paying fees from the S&P 500 and many individual stocks that I have no clue whether they will be good for me over the long term.”

Donelon ends the article by suggesting the reader make a checklist to help him manage his money, including:

Find out what others in your peer group are investing in.

Use tools like tracking apps to eliminate guesswork.

Make sure you choose an investment adviser you trust.

Ultimately, Donelon says, “Get an advisor and read the prospectus carefully, before handing over any capital or putting any money in a brokerage account.”

• • •

Linda O’Connell joined FOX Business Network (FBN) in 2001 as a reporter.

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