Could the housing frenzy reverse?

·2 min read
Real estate listings.
Real estate listings. JIM WATSON/AFP via Getty Images

Trapped by Parent Plus loans

"Some of the wealthiest U.S. colleges are steering parents into no-limit federal loans to cover rising tuition," said Tawnell Hobbs and Andrea Fuller at The Wall Street Journal. Baylor University has increased its tuition by nearly threefold in two decades. But it has also been "one of the least generous with aid," giving enough financial aid to cover less than 70 percent of what students needed. To make up the difference, parents of 2018 and 2019 Baylor graduates borrowed a median of $59,000 through more-unforgiving Parent Plus loans. The interest rates for new Plus loans was 6.28 percent this year, and those who default can have their wages garnished. But "only about 28 percent of Baylor parents had begun paying back Parent Plus loans after two years."

Could the housing frenzy reverse?

Some analysts worry that the current housing shortage could quickly turn into a glut, said Diana Olick at CNBC. "Anyone out house hunting right now knows the pickings are slim," and the data bears that out: The supply of homes for sale in August was down 13.4 percent from the year before. But Dennis McGill, a housing analyst at Zelman & Associates, thinks "there are too many houses being built," and demographics don't support more housing construction. McGill cites data from the latest U.S. Census that found household formation was 24 percent below where it had been the previous 40 years. McGill's collaborator Ivy Zelman, who was "one of the first to warn about the subprime mortgage crisis over a decade ago," agreed. "The market is too hot," Zelman said.

Crowdfunding investment sites

Startups big and small are raising money from individual investors through crowdfunding, said Brian Rinker at Business Insider. "Equity crowdfunding" has traditionally been considered "a last resort for founders who couldn't raise money elsewhere." But the startup boom in recent years has increased investor interest in getting in on the next billion-dollar idea at the earliest stage. Recent actions by the Securities and Exchange Commission have reduced the barriers to investments in private companies. Mercury, a banking startup with a $1.6 billion valuation backed by big-name venture funds like Andreessen Horowitz, recently "let retail investors buy $5 million worth of shares through the crowdfunding platform Wefunder" — itself backed, perhaps not coincidentally, by Andreessen Horowitz.

This article was first published in the latest issue of The Week magazine. If you want to read more like it, you can try six risk-free issues of the magazine here.

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