The Next Market Crash?

If the housing market crashes, it will likely be due to the steep rise in student loan debt, accompanied with a drop in average earnings for college graduates. The nation’s student-debt tab has more than doubled since the last recession to roughly $1.3 trillion. The unemployment rate for college graduates ages 22 to 27 fell to 5.6 percent in 2013 from 6.4 percent at the recession’s peak in 2009. Among 22-year-old degree holders who found jobs in the past three years, more than half were in roles not requiring a college diploma. Millennials are staying away from buying houses in droves, and these are two of the major reasons.

They have seen their parents suffer through the last housing crisis, and they are understandably concerned. It is their parents' generation that lost the most during that financial crisis.

It is also the higher income middle class who pays the highest percentage in taxes. They are typically employees or wage earners, earning ordinary income which is taxed at the highest tax rate.

Real estate investors are familiar with capital gains tax, which is the second highest tax rate. This is a tax on the profits gained from the sale of an income-producing asset.

True investors are typically taxed on passive income, which is the lowest tax rate. Rent, interest, royalties and dividends typically fall into this category. This income is generated through the least amount of work, in that it does not require the earner to trade hours for dollars, as does an employee.

Managing debt, income, and taxes will determine one's fiscal health. Being savvy about finances will help any investor keep more of their wealth during any economic downturn.

Happy Investing!