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Welcome to the BeSmartee blog. Enjoy a wide selection of articles related to mortgages, the industry, and real estate.

Warning Signs: Another Housing Bubble Is Coming

By Laura Agadoni · Jul 25, 2016 · Real Estate

Warning Signs: Another Housing Bubble Is Coming

Image courtesy of Flickr, Joao Trindade

Signs show another bubble coming. Some experts have a different opinion.

When the housing market crashed in 2008, it caused what came to be known as ''The Great Recession.'' When the bubble burst, it ''sent a shock through the entire financial system, increasing the perceived credit risk throughout the economy,'' according to a report published in The Journal of Business Inquiry.

The crash caused homes to lose up to half their value. People became underwater, owing more than their home was worth. And who wants to pay on a mortgage that's larger than what the home could sell for? Although some people did just that, many more opted to short sell their homes or to simply walk away and have the bank foreclose.

Present Day

Fast-forward to 2016, and we are seeing hot, even '' overheated,'' housing markets; bidding wars; rising home prices; and house flippers - all the signs of a housing bubble that's about to burst. Are we repeating the mistakes we made before? Yes and no. Let's explore four reasons the housing bubble burst and whether we're experiencing the same conditions today.

1. Easy Credit

Before the 2008 crash, credit was easy to get. Pretty much, if you were breathing, you could get a mortgage loan. This led to people getting mortgages who ultimately couldn't afford to pay them back. They lost their homes, and this contributed in large part to the housing crisis. Today the situation is different. ''Credit is still much tighter than it was before the financial crisis,'' says David Reiss, professor of law at Brooklyn Law School. ''This is particularly true for those with less-than-perfect credit scores.'' He explains: ''There are almost no no-down-payment loans as there were in the early 2000s. Those defaulted at incredibly high rates.''

But what about Federal Housing Administration (FHA) loans? They feature '' low down payments, low closing costs, and easy credit qualifying.'' Those are the very features that should sound some warning bells. But before you get too alarmed, keep in mind that the FHA has been making loans to people who do not qualify for a conventional mortgage since 1934. ''While there are low-down-payment loans available from Fannie, Freddie, and the FHA, their underwriting standards appear to be higher than those for low-down-payment products from the early 2000s,'' says Reiss.

2. Low Interest Rates

Mortgage rates have been low for so long that you might not realize that was not always the case. In 1982, for example, mortgage rates were 18 percent. From 2002 to 2005, the rates stayed at about 6 percent, which enticed people to take out mortgage loans. And in 2016, we're seeing historic lows of under 3.5 percent. If rates go up, we might see housing demand and housing prices fall.

3. ARMS

Before the housing crash when home prices were rising fast, many people were priced out of the market with a fixed-rate mortgage because they couldn't afford the monthly mortgage payments. But they could afford lower payments that were possible with an adjustable-rate mortgage - until that rate adjusted up. In 2005, 38.5 percent of the mortgage market was ARMs. But in 2015, that amount has dropped considerably to 5.3 percent.

4. A Buying Frenzy

There's an old story that before the stock market crash of 1929, Joseph Kennedy, Sr., sold his shares. Why? Because he received a stock tip from a shoeshine boy. Kennedy figured, the story goes, that if the stock market was popular enough for a shoeshine boy to be interested, the speculative bubble had become too big.

Before the housing crash, this country saw a home buying frenzy similar to what happened before the stock market crash. Everyone from lenders to rating agencies to investors (foreign and American) to investment bankers to home buyers was eager to get into the mortgage game because house values kept rising. Today, we are seeing a similar buying frenzy in some markets, such as San Francisco, New York, and Miami . Some experts think that the price increases of homes in those areas are not sustainable. They say that because heavy foreign investment in those areas is part of what's driving up prices, if those investments slow or stop, we could see a bubble burst.

So what do some experts think?

David Ranish, owner/broker for The Coastline Real Estate Group in Laguna Beach, CA, says: ''There are concerns about another housing bubble, but I do not see it. The market could stabilize, but a complete collapse is highly unlikely.''

Bruce Ailion , an Atlanta, GA, real estate expert, says,'' ''Five to six years ago, I was a buyer of homes. Today I am a seller.''

David Reiss says, ''It is probably a fool's game to predict the future of the housing market or whether we are in a bubble that is soon to burst.''

Bottom Line

Buying a house today could be the right decision for you, but only if you're ready to buy and can truly afford to. If you have enough money saved for a down payment, to make the mortgage payments, and to fund repairs and maintenance, and if you have a high credit score and know that you will stay in the house for at least five years, you might want to consider buying. The condition of the real estate market is a factor to consider when making your decision, but it is not the only one.


Real Estate Commission: Explained, Revealed and Compared
By Arvin Sahakian · Aug 17, 2015 · Real Estate Data

Real estate agents receive commissions from home buyers and sellers, collectively earning over $50 Billion per year. Learn how commission amounts are set, who pays them, and how they work in this article. Read more.

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California Property Tax: Complete List by County 2014-2015
By Tim Nguyen · Nov 26, 2014 · Real Estate Data

List of secured property tax rates for all counties of California fiscal year for 2014-2015. Read more.

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California Proposition 60 and 90: Your Complete Guide
By Tim Nguyen · Nov 28, 2014 · Real Estate Data

If you live in California and are over the age of 55 you can effectively reduce your property taxes when buying a new home. Read more.

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What to Expect During the Home Loan Closing Process
By Arvin Sahakian · Feb 24, 2015 · Mortgage

You've heard the term used before, but what does loan closing mean? Find out all you need to know about the process. Read more.

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The Surge in Foreign Real Estate Investment in the United States
By Laura Agadoni · Feb 24, 2016 · Real Estate

Foreign real estate investment in the United States, both commercial and residential, is a huge phenomenon that is only expected to accelerate, maybe even to skyrocket, in 2016. Read more.

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Houston vs. Dallas: Which One is Better to Live in?
By Amanda Curry · Oct 11, 2016 · Real Estate

Houston Vs. Dallas? If you are considering moving to either of these major metropolitan areas, we've created a resource to help you make the decision process a little easier. Read more.

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5 Illegal Borrowing Activities: Things That Are Illegal When You Try to Get a Home Loan
By Laura Agadoni · Jan 22, 2016 · Mortgage

Whenever there is money to be made or money to be spent, some unscrupulous folks will take advantage, trying to game the system or commit all-out fraud. Read more.

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Does Homeowners Insurance Pay Off your Mortgage if the House is Burned Down?
By Amanda Curry · Feb 8, 2017 · Mortgage

In this article, we explore how homeowners insurance works and what happens in the event of a house fire. Read more.

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16 Ways to Improve Your Debt-to-Income (DTI) Ratio
By Veronica Nguyen · Nov 29, 2014 · Mortgage

Your DTI is used by mortgage lenders to determine whether you qualify for a loan, and if so, for how much. Improve your DTI with these 16 tips. Read more.

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5 Tips on Getting a Mortgage Loan after Bankruptcy
By Veronica Nguyen · Apr 15, 2015 · Mortgage

A bankruptcy will make it very difficult to attain a home loan. These 5 tips will help you re-establish your credit quickly in order to qualify for a home loan. Read more.

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