The United States: Five Keys to Understanding Why Talk About a Real Estate Bubble and Whether It’s a Time to Buy

Soaring real estate prices in the United States, which reached a new all-time high in April, have raised fears of a crisis like the one in 2008. A lower supply of units for sale has increased interest from buyers looking to close a deal before mortgage rates are higher than they already are, causing a Record an increase in the value of square meters They put on the table a question that invades those who have bought real estate in that country: Is the US market facing a new real estate bubble?

Before answering this dilemma, it is worth clarifying five basic questions when it comes to understanding what is happening in the sector

The concept of “bubble” applies to any type of asset when referring to A phenomenon that occurs when its price begins to rise rapidly and detaches from a real basis that can explain the increase, as required for Nation Federico González Rouco, an economist specializing in housing. “The most famous case in recent years, which serves to clarify, was the Internet crisis at the end of the 1990s, when the period of economic growth for Internet-related companies was evident.”

“Everyone started investing in companies in this sector without a clear idea of ​​where they were investing and what happens is that inevitably when a lot of people are interested in putting money into certain sectors, their values ​​go up. This led to the start of trading the shares of the companies at very high values ​​without real support,” Analytics around that stage, which culminated in the bankruptcy of many technology companies.

Specifically in Property, A housing bubble is a period characterized by an unusually high home sales price. It is a phenomenon driven by high demand associated with strong expectations and speculation. The fact that catches the attention of the American market is the one in the United States Home values ​​rose nearly 30% in the last quarter of 2021 compared to the same period of the previous year.

Some specialists see the US real estate market as showing “abnormal” behavior. Is that, before the script that marked it The unstoppable increase in the value of square meters, there are those who remember the real estate bubble that the country experienced between 2006 and 2008, Which caused the mortgage and stock market crisis and led to what is known as the Great Recession.

In short, Rouco explains that between 2001 and 2005, the US financial system deregulated mortgage loan requirements, while interest rates fell. “Many people have used this tool without formal income and have poor financial histories. This movement boosted housing demand, but supply did not grow as much.” Indicates. In this context, mortgage loans went from 70% of the country’s GDP in 2002 to 100% in 2008.

It sums up: “When interest rates rose, many went out to sell their homes at the same time, causing the value of square meters to plummet.” There was a bubble there: the increase in demand, which drove up prices, was driven by credit. It was a crisis that culminated in four million people who lost their homes and 10 million who ended up owing more money than their homes were worth, he says.

After reviewing the real estate crisis that erupted in 2008, the specialist asserts that there is a major factor that makes the current situation different. “For there to be a bubble there has to be something fueling the price increase. Some believe that this factor is Interest rates have been low for a long time. However, real estate credit today is at similar levels – in relation to GDP – than it was five years ago, that is, this tool has not grown above the economy,” he asserts, although it shows that the US real estate market is “giant” , dynamic and with a high turnover,” which is why he stresses that generalization is complex.

After peaking, the bubble bursts and home prices begin to fall, usually due to rising mortgage rates or inflation, causing demand to fall. It is called a ‘bubble’ precisely because it is a disguised air behind the intent to buy and is punctured when the factor that fuels demand ceases to appear. It is mainly a problem for those who bought on credit, because the acquired property becomes less than it owes, Which means that even the sale of property cannot pay off the debt”, explains the economist.

In the midst of the scenario that the US market is going through, specialists think so It is not convenient to buy. “This is not the time to think about it. Mortgage interest rates were very low and now they are high. A lot of people took the opportunity to buy homes because rates were less than 5% but today they are really higher. The moment to get credit is really gone,” he asserts. Roco. At the same time, it appears that the market is slowly starting to rearrange itself.

According to Mariano Cappelino, CEO of Inmsa Real Estate Investments, The real estate bubble is manifested in the rise in real estate prices, which have increased by more than 50% in the past two years.. Now, slowly, “some signs of cooling” are starting to show. Among them, the specialist explains that in recent months, About 17% of sellers have reduced their values ​​to be able to sell in a bearish scenario As a result of high inflation rates and increased interest rates on mortgage loans.

“There are certain factors still supporting the market, but supply and demand will soon balance out. This price correction started realizing that everything was overheating,” Indicates. Although it shows that it is difficult to generalize in such a large market. Looking to the future, stresses that the value of square meters It can drop 20% when the bubble is punctured.

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