King Solomon tells us that discernment is the way to prosperity—and that means casting a critical eye on circumstances and learning from the past. Now, with memories of the recent housing collapse still relatively fresh, some financial and housing experts are finding signs of another one looming on the horizon thanks to rising home prices, short supply and increased demand.
Although new mortgage lending rules put into place in January 2014 aim to limit the kind of iffy loans and unqualified borrowers that sparked the meltdown of 2008, some of those practices are making a comeback – and sparking fears of a housing bubble 2.0.
In the early years of the new millennium, housing was hot. Lenders made mortgages available to all comers, virtually without qualification, which fueled the so-called “subprime mortgage crisis.” Many offered loans with no interest, or no down payment at all. And many of these borrowers, trapped into loan arrangements they poorly understood, fell into default and, for large numbers, foreclosure. Those massive numbers of foreclosures, combined with mismanagement and outright fraud on the part of major lenders, sent the housing industry into a downward spiral that’s only recently begun to reverse.
Why the concern about a new bubble that might burst and undermine the housing recovery? Now, as then, housing markets are heating up. Home prices are rising as demand increases. Some major markets around the country are facing a severe shortage of available properties for sale. And despite the ongoing fallout from the foreclosure crisis and the days of indiscriminate lending to “subprime: borrowers, no-interest loans and no-down purchase options are appearing once again on the menu of lending options at some institutions.
Those abuses prompted the passage of the Dodd Frank Act and other legilslation aimed at improving acountabilty in the lending industry and protecting consumers. That led to th creation of the Qualified Mortgage Act, which in January 2014mput in place new standards for mortgage lending that could protect institutions using them from penalties. But lenders are still free to offer any loan products they want – and they are, bringing back many of the options that set buyers up for failure before the collapse.
Some of the same factors that appear to signal a new housing bubble about to bursts may actually work in the favor of investors applying Jason Hartman’s strategies for building wealth through income property. Low interest rates, and even the availability of loan products to meet many different needs may combine to open more doors than a bursting bubble might close. (Top image;Flickr/gorogen)
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The Solomon Success Team