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What Is A Housing Bubble, And Are We In One?


If you are a homebuyer, chances are you have heard about the housing bubble. But what is it? What does it mean for me as a buyer? Is this overblown media hype or something to be worried about? This article will answer these questions and more. Read on to find out why we may not be in one, but should still be careful of the future of home prices.

What Is A Housing Bubble?

A housing bubble is when the value of a certain asset (in this case, homes) starts to inflate dramatically and quickly. The prices for these assets then start to outpace incomes, which causes home values to swing back down again.

What It Means For Homebuyers:

If you are looking at buying a house in the near future, it's best not to buy right now because there will be many more houses on the market soon that are priced lower than they were before due to people selling their homes so they can get money from them while they still have some equity left. However, if you're just getting into real estate as an investor or another way but want your investments protected against any other possible economic issue, it may be worth looking into other options that are safer.

If you're worried about the future of home prices, now is not a good time to buy because there will always be an opportunity cost associated with this purchase.

The Bottom Line: Be careful! When everyone wants to sell their house all at once in order to get money for something else, then the price of houses can drop significantly over just a few years or months. The people who bought right before this happened lost out on some investment potential and could have potentially been underwater if they couldn't pay off their mortgage during those low periods where property values were extremely discounted. It's also important to remember that these housing bubbles usually happen when interest rates are high so buyers need to be aware of this when shopping for a house.

Are We In A Housing Bubble?

Many people believe that we are in the midst of a housing bubble and will soon see its effects on prices once again. However, there is disagreement over whether or not this is truly happening - some studies show that home values have risen as much as they did during previous bubbles but others point to an affordability issue where homes are outpaced by incomes (in other words, it costs too much for someone with a normal income to purchase one). This article from The Wall Street Journal discusses both sides of the argument: "The National Association of Realtors reported Monday that existing-home sales rose 15% last month to an annual rate of more than five million, the strongest pace since November 2007. The average price of a home climbed 14% from August to September on a year-over-year basis to $238,000."

What Should You Do?

So what should you do with this information? If you're looking for an investment and want your assets protected against any other possible economic issues, it may be worth looking into other options that are not as risky (or at least have less risk involved). However if you're just getting into real estate - such as investing in property or buying your first house - then there will always be opportunity cost associated with this purchase so now is not the best time to buy because prices can fall significantly over just a few years or months.

It is important to note that these housing bubbles usually happen when interest rates are high so buyers should be aware of this when looking for a house.

So what does this mean for you? If you want the protection against other economic issues and still want to invest in properties, then it may be worth considering more options than just real estate - especially if they have less risk involved or at least depend on different metrics such as cash flow instead of valuation (in other words the value goes down but your ability to make money from rent stays constant). However, if you're looking at buying rental property with mortgage financing where low prices will leave renters homeless due to lack of affordability, then now could very well be a good time! Take into account the timeline of how long interest rates stay high and be aware that prices can fall significantly over just a few years or months.


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The top real estate agency in Northern California, Sexton Group Real Estate | Property Management in Berkeley, California is a boutique real estate company specializing in residential sales for properties throughout the San Francisco Bay Area. To better serve our clients we have three local offices, one in the heart of picturesque Berkeley, one near downtown Oakland and the third in the heart of historic Lafayette, California. The Sexton Group encompasses the essence of Berkeley’s charm, Oakland’s history and Lafayette’s family-oriented vibe all with a relaxed, down-to-earth nature. We are an amazing group of real estate agents whose wealth of experience spans more than 25 years in the industry.  Looking to buy a home in Contra Costa or Alameda County? Contact us today for your free consultation!