With all that has gone on over the past few years, one question many have is with regards to the housing market. When will it bounce back? Have we hit bottom yet? How far can things fall?
I took a look at some very interesting numbers, and what they indicate to me is that we still have a ways to go. Depending on factors such as interest rates, unemployment rates and the average annual income in America, we could be in for some additional pain. I don’t want to believe it, but some of the numbers are a bit scary.
Looking at the very basics, two major factors in the housing market equation have to be income and interest rates. Should income stagnate, and interest rates rise, buying power is certain to fall. It’s a simple matter of math, the higher the interest rates are, the more your home loan is going to cost. The more your monthly payment is, the less you can qualify for.
Right now, we are sitting on interest rates for 30 year fixed mortgages of less than 5 percent. This is historically very low. It was only 20 some odd years ago when rates were in the 10% to 14% range. With all the stimulus programs coupled with the huge amount of debt America is carrying, it seems very likely that rates rise in the future, perhaps the not too distant future. What happens to the housing market if we see 8.5% rates again? How about 12.5% rates again?
If you couple that with incomes that are not increasing at the same pace as they were 30 years ago, you have the makings of a prolonged downturn. Read the full article with detailed numbers here - Why the Housing Market is Still in Trouble.