Wednesday, March 29, 2006

Real estate bubble?

What is the real estate bubble?

This is a theory that the value of houses has gone up or inflated too much too fast and that houses are not really worth what people are paying for them. Real estate markets get saturated with buyers when they are hot and house prices go up per supply and demand. These buyers are a mixture of prospective homeowners and investors.

Will the real estate bubble burst?

There are 18,000 houses on the market for sale in Las Vegas right now. So, we have a huge supply of houses and all of the sellers are competing with each other, which is driving prices down. They are not drastic drops, but a big difference from a year ago when a seller would get multiple offers above asking price.

Is there a real estate bubble?

Yes and no. It depends on how you look at it. We look at real estate as being like the stock market. They both have their ups and downs (the stock market daily) and if you buy at the right time you will make money. A smart investor will have a diversified portfolio, whether it be stocks or properties. This allows you to ride out the slow times. Let's say an investor bought a house last summer for 80% of what it was worth back then and rents it out for a profit of $100 a month. If the market slows down and the value drops a little bit, who cares! That property is still sitting there making you $100 a month and eventually the value will go back up and you will have paid down the mortgage.

Do I believe that the bubble will burst? No. Do I believe that markets will slow down and bring down values? Absolutely. Can you make money in either scenario? Yes if you play the game right.


At 1:41 AM, Blogger JR said...

Interesting post.

To me it seems like all the cities that had hyper-appreciation of real estate values from 2000 through 2005 are now really taking some major value declines.

Here in San Diego, I subscribe to: This San Diego real estate publishes a real tell-it-like-it-is blog. His 12-31-07 post Real Estate Market Predictions for San Diego in 2008 is a realistic idea about what this year will hold for not only San Diego, but, all the cities that had hyper-inflation.


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