By Ramsey Judah
The real estate crash of 2007-2008 was caused by a few things. Firstly, Wall Street had the banks lower qualification restrictions so that anyone off the street can go into a bank and claim they earn whatever to get a house they could not really afford.
Secondly, most loans that were made were made with variable interest rates that rose up faster than the temperature in the arctic.
Thirdly, Wall Street was packaging the loans in a very deceiving way to make the loans seem like they were top level loans which fooled investors into buying billions of failing packages.
Long story short, the 2007-2008 crash was concocted by rich, well-connected people who could care less as to what happened to homeowners who fell for the scheme. They also made a killing fooling investors and got away with it because the government was, and still is, in their pockets.
Since the crash, loan qualification restrictions have been at all-time strict levels making the loan process much more stringent along with a number of safety nets for banks to ensure that loans are well-insured in the event of a default. These safety nets are paid by the homeowner which adds to the cost of owning a home.
So considering people, investors and banks will not fall for the same trick again, how will the next crash happen? Here’s how: down-payment assistance. Here is why.
Our economy is not recovering well from the great recession. The jobs report by the federal government says that unemployment is at an all-time low. But what it does not tell you is that income-generation for workers is at all-time lows as well.
People are living paycheck-to-paycheck and even requiring credit cards to pad their low incomes. The middle class has all but disappeared as income disparity between the rich and everyone else continues to grow.
More than half of the people in this country do not have a savings account. Not because they are big spenders, but because they have no money to save after paying their living expenses.
But most people can pay some kind of rent, for the most part. Now what if a bank can give a loan without requiring a down payment? How many more people will all of sudden be able to buy homes since they would only need to ensure that they can make the mortgage payment? This is how the next real estate bubble will be created.
And it will burst because most people who have no ability to save money have no safety net in case of job losses since the vast majority are at-will employment. At-will employment would mean that mass layoffs could happen again.
All it would take for the next housing bubble to pop is for the economy to sneeze, causing segments of people in America to become unemployed.
This would give birth to a new foreclosure crisis and many more people at risk of losing their homes. The newly unemployed would have a dire effect on our currency circulation thereby causing businesses to fail and more unemployment to follow.
For those of you who own homes or planning to own one, be aware of the market factors that would cause a new housing bubble to pop up. It could mean the difference between selling before the bubble pops or buying at bargain prices afterward. Greed in Wall Street has no bounds, so be sure that there will be a new scheme invented in order to make the next big killing at the expense of millions of people around the country.