How to Spot the Next Real Estate Bubble
Spotting the next real estate bubble is a tricky thing to do. If it were possible, people would be better at avoiding when the bubble pops. In order to spot the next real estate bubble, it is important to first know what it is. A real estate bubble is an increase in housing prices that is fueled by demand. Housing bubbles typically start with an increase in demand, while there is a limited supply. The cycle takes a long period of time to replenish and increase. A few ways to spot the next real estate bubble is to pay attention to the media, note when homeowners can no longer afford to buy their homes and when investors can’t find property at low prices.
he Media
When the real estate market was booming, it is all we heard about in the media. There were television shows about flipping houses, commercials that showed you how to get rich with real estate and books were published about the glories of owning property. A bubble mentally is hidden well within media hype. It is important to examine the real estate market as a whole and know that real estate prices go up and down. If the media is publicizing real estate, chances are we are in a bubble or approaching one soon.
Homeowners Can No Longer Afford Their Homes
Another way to identify a bubble is if a homeowner can no longer afford to purchase their own home. For example say someone purchased their home 10 years ago at $125,000. Today, they find out their house is worth about $475,000, which is over a 200 percent increase in value. However, the homeowner’s household income only rose by 30 percent. In essence, the same family that purchased the house 10 years ago would not be even remotely close to affording their house in the current market.
Investors Can’t Find Property
Another sign of a bubble is when investors aren’t able to find properties at prices that offer cash flows. When investors pay $350,000 for large complexes that only generate $25,000 a year in gross rents, it’s not investing, it’s speculating. In this scenario, the rents are not enough to cover the mortgage and expenses. The only reason people pay those prices is with hope that someone will come along and pay a higher price. This is the result of a market where homeowners no longer provide buying support because they are “priced out”. In turn, investors no longer provide buying support because they are also ”priced out”.
When it comes to a real estate bubble and purchasing real estate, the amount of risk you take is your choice. As a result, you should focus on motivated sellers so you can buy extremely low. Focus on buying small multi-unit properties or buy outside of your area where properties offer a positive cash flow.
Source: finweb.com
May Mid-Atlantic Region Sales Show Upward Trend
May 2010 Residential Real Estate Market Statistics from MRIS Compare Monthly Sales Figures
ROCKVILLE, Md., June 10 /PRNewswire/ — Metropolitan Regional Information Systems, Inc. (MRIS), a leading provider of real estate information technology and the largest multiple listing service in the nation, announced that the number of homes sold in the Mid-Atlantic region increased by 7 percent* during the month of May compared to April 2010. MRIS today released its May 2010 Residential Real Estate Market Statistics, a monthly report showing purchase activity and trends by jurisdiction, county and zip code within the Mid-Atlantic region.
Data from the report suggests that a move toward stabilization could be occurring in the residential real estate sector, despite the end of the government tax credit incentive on new home purchases, which ended on April 30, 2010. Average Days on Market (DOM) in May decreased by 6 percent over April, falling from an average of 83 days to an average of 78 days in the region. Average sold price increased nearly 3 percent compared to May 2009, after increasing by 4 percent in April. The majority of homes sold were priced between $200,000 and $350,000** offering three or more bedrooms, a continuation of the trend reported in April.
“MRIS actively monitors and analyzes purchase activity and trends each month to keep real estate professionals (and their customers) updated on the latest meaningful market trends. As the Mid-Atlantic region continues to show selective signs of a slow recovery (even without the tax credit incentive on new home purchases for first-time and upgrading buyers) we are cautiously encouraged that supply has not outpaced demand in the region as a whole,” said John L. Heithaus, chief marketing officer of MRIS.
In the major cities of the MRIS region, as well as in some suburban areas, the report shows varied results compared to May 2009:
Baltimore Area***:
- Total units sold increased by 26%, and increased by 10% over last month
- Average sold price decreased by nearly 3%
- Days on market decreased by 20%
District of Columbia:
- Total dollar volume sold and total units sold both increased by 36%, but only increased slightly over last month
- Average sold price remained static
- Average DOM fell by 36%, from 91 days to 58 days
Shenandoah County, VA:
- Total units sold increased by 147%, and increased 9% over last month
- Average sold price declined by nearly 12%
- Average DOM dropped by more than 18%, from 167 to 136 days
Washington County, MD:
- Total units sold increased by 63%, and increased by 28% over last month
- Average sold price increased by 5%, but increased by 13% over last month
- Average DOM decreased by 5%, from 160 days to 152 days
Full reports on MRIS market statistics for all jurisdictions in the MRIS region are available through a self-service tool on the MRIS website; navigate through the News link to Market Statistics, www.mris.com.
*Source: Real Estate Trend Indictor – Higher Price Segment Format, Entire MRIS Region 5/1/2010 – 5/31/2010. RealEstate Business Intelligence, LLC, an MRIS Company.
**Source: Real Estate Trend Indictor – Higher Price Segment Format, individual reports by jurisdiction 5/1/2010 – 5/31/2010. RealEstate Business Intelligence, LLC, an MRIS Company.
***In MRIS reporting, “Baltimore Area” includes the Maryland counties of Anne Arundel, Carroll, Harford and Howard, and the city and county of Baltimore.
Metropolitan Regional Information Systems, Inc. (MRIS) is a leading provider of real estate information technology, and the largest multiple listing service in the nation. MRIS offers a portfolio of technology solutions, broker and agent software products and an industry-leading consumer portal, HomesDatabase.com. In addition, the CURE Solutions Group subsidiary of MRIS provides back-end technology to other MLS systems through CURE, a proprietary solution. MRIS serves more than 40,000 real estate professionals spanning the Mid-Atlantic region, including Maryland, Virginia, Washington, D.C. and parts of Pennsylvania, Delaware and West Virginia. Visit www.mris.com. “Like” us on Facebook/MRISonFB, and follow us on Twitter, @MRIS_REal_News.
SOURCE Metropolitan Regional Information Systems, Inc.