Real Estate | Economics | Recession
5 Reasons Why A Housing Crash Is Imminent
“History never repeats itself, but it does often rhyme.”
All signs point to a housing bubble in the United States. It’s not a question of if it will pop, but when.
Reason #1: Americans are House Poor
When looking at a home to buy, most people typically think in terms of monthly payments.
Instead of asking, “Can I really afford this house?” most Americans simply compare the monthly mortgage payment to their income. Unfortunately, this is a grave mistake.
The mortgage payment is not the complete cost of owning a home. In addition, there are also property taxes, utilities, housing insurance, expensive repairs, and routine maintenance costs that all scale with inflation.
Buying “too much house” can suck up most of your paycheck for decades and possibly lead to a foreclosure if you lose your job in a recession.
With rapidly rising inflation and layoffs slowly increasing, homeowners are digging into their savings to avoid foreclosure. To see for yourself, the chart below represents the Personal Saving Rate of Americans from 1990 to today.
Savings are a “last line of defense” against foreclosure. It won’t be pretty if homeowners cannot replenish their savings in the coming months.
Reason #2: We Are Headed For a Recession
This chart graphs the 2/10 Treasury Yield Spread, which is the difference between the 10-year and 2-year treasury yields.
This spread has been used to predict upcoming recessions. It has successfully predicted every…