Is The Housing Market Sending Up Clear Warning Signals?

May 5, 2016

Now that the U.S. is in full on recovery mode from the Great Recession and the housing crisis, everyone is playing Monday morning quarterback. As we all look back at the years leading up to the bubble bursting, namely 2005 to 2007, people are pretty much in agreement; there were plenty of signs forewarning of impending doom.

As Michael Brush, a columnist for MarketWatch writes, back before the bubble burst, photos of small houses selling for huge prices made the rounds, and yet no one said boo until it was too late. Now, with a “glorified tool shed” on the market in Brooklyn for $500,000, we all seem to have forgotten, and if we get fooled twice, it’s on us.

That isn’t the only troubling sign, as Brush lists other anecdotal signals, as well. For example, a major financial website recently ran a list of the best cities to flip houses in. Previously, this house flipping acted as another early sign of trouble we ignored before.

The Bronx has recently experienced an increase of 30 percent in home prices in the first quarter alone, another parallel that can be drawn to the time period between 2005 and 2007 that trouble was coming. And, finally, ads on TV about how people can get a mortgage quick are once again running during seemingly every commercial break.

All of this leads Brush to ask, are we strolling down the train tracks completely oblivious to the freight train barreling towards us? Unfortunately, that freight train may be a lot closer than we would like.

Due to things like zero-percent down payments, buyers stretching their budgets to purchase homes, home prices rising quickly relative to income, and the lack of help coming from Washington, there are some eerie parallels between now and the time leading up to the bust.

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