3 of 9 main reasons that the housing bubble bursts

If you own real estate or are considering buying real estate and be more careful, because this could be the most important message you receive this year on the future of real estate and your financial situation.
The last five years have seen phenomenal growth in the housing market and therefore many people believe that real estate is the safest investment you can make. Well, this is no longer true. Caused a rapid increase in property prices in the housing market to be in the price levels unprecedented in human history when inflation is taken into account! Increased number of people concerned about the housing bubble means there are fewer options available to home buyers. Fewer buyers mean that prices are falling.

May 4, 2006, said Federal Reserve Governor Susan Blies that "the type of dwelling and really sharp." What follows in the wake of the new Fed Chairman Ben Bernanke administration, saying that he was concerned that the "softening" of the housing market would hurt the economy. And the Federal Reserve, Alan Greenspan, the former is described earlier in the housing market as a foam. All these high-level experts agree there is already a financial decline of viable market, it is clear there is a need to know the reasons for this change.

3 of 9 main reasons that the housing bubble will burst as follows:
1. Interest rates are rising - foreclosures and up to 72%!
2. Price first time buyers in the market - real estate market is the base of the pyramid and the collapse and
3. The market psychology has changed so that now people are afraid of the bubble - it's for real estate craze is over!

First, the housing bubble bursts and rising interest rates. Under Alan Greenspan, interest rates were at historically low levels in June 2003 and June 2004. Allows these people and lower interest rates to buy homes that were most expensive in general, but can carry the same monthly cost, creating essentially "free money". However, by the end of time of low interest rates and interest rates could rise, and will continue to increase as well. If interest rates rise to fight against inflation, partly due to the high cost of gasoline and food. High interest rates make home ownership more expensive, pushing down the value of existing housing stock.

Higher interest rates also affect people who bought mortgages modified (arm). Adjustable rate mortgages very low and low monthly payments for two or three years the first, but then disappears at a lower interest rate and pay the monthly mortgage payments jump dramatically. As a result of mortgage modification re-rate, home foreclosures during the quarter 1 of 2006, up 72% in the quarter 1 of 2005.

The situation will worsen and mortgage interest rates continue to rise, and mortgage payments is adjusted to higher interest rates and adjustable monthly mortgage payments. Moody said that 25% of all mortgages outstanding in and out of the interest rate reset in 2006 and 2007. There is a $ 2 trillion of mortgage debt in the U.S.! When you increase the payments, it will be quite a blow to the pocket. A study by an insurance company in the country's greatest claim that 1.4 million families face a break fee of 50% or more of the time of payment of the preliminary period ended .

The second reason why the housing bubble bursts, it is the buyer of new homes are no longer able to buy homes because of rising prices and interest rates rise. In the real estate market is essentially a pyramid scheme and as long as the number of buyers is increasing all is well. Is also home shopping by home buyers at the bottom of the pyramid, and new funding for this $ 100,000.00 home goes all the way up the pyramid to the seller and the buyer of the house of $ 1,000,000.00 as people sell a house and buy a more expensive house. The price of this double-edged sword of rising property prices and high interest rates many new buyers in the market, and are now beginning to see the effects on the real estate market in general. And a slowdown in sales and inventory of homes available for sale are rising rapidly. The latest report on the housing market, sales of new homes fell 10.5 percent from February 2006. This is the biggest drop for any month in nine years.

The third reason why the housing bubble burst is that psychology in the real estate market has changed. Over the last five years, the real estate market has increased dramatically, and if you buy property that you are more than likely that the funds provided. This has fueled a positive return for investors in the market much higher and more people see, and also decided to invest in real estate before "failure".

It is well known in the psychology of any market bubble, if we talk about the stock market or the housing market to the "collective mentality", where everyone follows the herd. This herd mentality is at the heart of every bubble has occurred many times in the past, including during the U.S. stock market bubble in the late 1990s, Japanese real estate bubble in 1980, and even as far as the railway bubble of the United States in 1870. The herd mentality has taken quite the real estate market until recently.

Bubble continues to grow as long as there is a "more crazy" to buy at a higher price. There are also fewer "wildest" available or willing to buy houses, and the mania disappears. When the hysteria going on, and excess inventory built during the economic development leads to lower prices. This is true for all three of historical bubbles mentioned above, and many other historical examples. Also important to note is that when all three of these historical bubbles burst and threw the U.S. into recession.

With a change in mentality regarding the real estate market, investors and speculators are afraid that they left a real estate contract that lose money. Consequently, not only are less purchase real estate, but at the same time, the sale of investment properties as well. This is producing a large number of houses for sale on the market at the same time that the record flood of new home construction market. These two forces increase tensions, the increased supply of homes available for sale as well as increase the supply of new homes for sale to exacerbate the problem and pay all the property values ​​down.

A recent study showed that 7 out of 10 believe that the housing bubble will burst before April 2007. This change in market psychology of the "must have the property at any price" to a concern that a good amount to cause the end of the property market boom in real estate.

Replicas of the bubble explosion can be enormous and will affect the global economy significantly. Billionaire George Soros said that in 2007 the U.S. will be in recession, and I agree with him. I think we'll be in a recession because, as you will lose the shards of real estate bubbles, and employment opportunities, the Americans will not be able to change money outside their homes, and whole economy will slow significantly and thus leading to recession.