In recent months the only financial news people seem to care about is the recession. Many economists stated that if the recession were to become official, the markets would see a massive sell off, and everyone would panic. Then the recession was officially announced, and everything remained relatively flat. However, in the past couple of weeks a new conflict is slowly but surely starting to brew, this conflict. . . the housing market bubble.
On Wednesday, the 21st, the Federal Reserve announced a 0.75 point interest rate hike. This not only became the third consecutive 0.75 rate hike in the last five months, but also marked the 5th general increase in the past 5 months. These aggressive hikes have led to an interest rate we haven’t seen since the crash of 2008, around 3-3.25%. Similar to 2007-2008, we witnessed a long period of time where interest rates weren’t as high, which allowed buyers to go into a frenzy. In fact in 2021, annual existing home sales hit 6.12 million, which is the highest since 2006. Whether or not it is a coincidence that the last time home sales were this high was right before a market crash, is up for your interpretation.
Let’s say that the housing market does see a crash sometime in the near future, what are some of the effects for the average American homeowner? As soon as prices start to rapidly decrease many homeowners will find that they have an underwater mortgage. In other words, an underwater mortgage means that the principal of your home loan is worth more than your actual home. For certain owners who are not able to wait out the crash, foreclosing their house and often declaring for bankruptcy is the only option.
Even though this cycle of the housing market correcting itself is something that is inevitable, there are small things that homeowners can do in order to feel less impact. For starters, if one is looking for a new house right now, many would recommend against that decision. With the current hyper-inflated bubble we are still in, as soon as the market crashes your mortgage will be underwater as mentioned before. Experts also recommend creating an emergency account that will cover your expenses for 3-6 months. Besides this, there is not much one can do other than sit and watch.
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