Is There A Housing Bubble Brewing?

The fear of missing out (FOMO) drives people to irrational behavior to win. We saw it in the housing crash of 2007-2009. Cheap money? Get some before it’s gone. 100% mortgage, no money down, cash back at closing? The bank says it’s OK, it must be safe. Everyone’s a winner. Financial rules don’t apply.

For every economist who saw the last housing bubble coming, there was a REALTOR analyst ready to cry IRRESPONSIBLE!  Turning a blind eye to reality kept the housing market rising and commissions churning for a few extra years twenty years ago. The same strategy is employed again. There Isn’t a Bubble.  Fool me once, shame on you. 

Fool Me Twice

Economic variables will be compared and contrasted by people with intelligence far beyond my ability. I don’t know how the variables work and I also don’t know how two highly intelligent experts can look at the same data and predict opposing outcomes unless the economic variable that matters most is who paid for the opinion. 

One difference between the bubble that burst and today are said to be the no-documentation loans, and wild west lending practices of yesteryear.  I wonder if there is a difference. How we get to 0% equity and negative equity in a home isn’t the cause of a market collapse. The cause is the fact that homeowners have zero equity or negative equity when economic conditions change for the worse. With banks pushing low downpayment mortgages and home equity loans for 100% of the on-paper-equity, the pressure to create the weak spot in the bubble exists just as it did before.  Fool me twice, shame on me.

Protect Yourself

It’s empowering when banks consider us low-risk borrowers for high-dollar mortgages. It’s a source of pride to go into a home buying competition and outbid the competition to win the accepted offer. Who’s looking out for you? Who is guarding you against your emotions and your need to win? If it’s not you, it’s no one. 

The emotional factors that drive us to do the things that are short-term high-risk propositions can be overcome. People who resist the pressure to abandon fundamental principles of home buying will be in a better position to ride out the next burst bubble.  Prepare yourself. 

The thing about winning the accepted offer this year is that you won’t know what you won until we know if the bubble is real or imaginary.