If you listen to news stations or financial stations then we are either in or about to be in or definitely aren’t in a real estate ‘bubble’. Everyone has their opinion about this and many ‘experts’ want to be the one who ‘predicted’ the next bubble or market crash.
So how can you tell when there is a real estate bubble?
According to an article in Real Trends, you can tell where your local real estate market is in the real estate cycle based on 4 fundamentals which you should track.
1. Unemployment – this is supposed to be the earliest warning sign that a change is coming and usually can tell you how the market will be 12-18 months from now.
2. Appreciation – by tracking this on a quarterly basis you can see whether your local real estate market is accelerating or braking (info can be obtained about this in the quarterly “House Price Index” report on the FHFA site
3. Affordability – this isn’t just whether prices are up. Affordability has to do with income levels and prices and interest rates. One reason the real estate market has been strong for the past few years is that the low interest rates has made monthly payments for homes affordable even with the high prices. (We are definitely starting to see an affordability issue in the Los Angeles area currently.)
4. Ratio of supply to demand – this is best viewed for specific price ranges.
At this time in many areas the luxury market (highest priced homes) are seeing a decreasing demand and increasing supply which is resulting in longer times on the market, more price decreases and a shift from a seller’s market to a buyer’s market.
At the same time the starter/first-time buyer/entry level home range has a very low supply and very high demand which is resulting in fast sales often with multiple buyers making offers and sold prices often above the list price.
I’ll be happy to tell you where your market stands based on these factors so you know whether it is a good time for you to sell or for you to buy.