The Real Estate Bubble: An Analysis

The key points covered in the below video are as follows:

1) A panic to buy has merged into a panic to sell.

2) Prices are coming down.

3) The greatest competition is being seen among builders of new homes.

Over the past 3  years, homebuyers have been buying at a frenzied pace, signing documents and wiring funds before even seeing a house.  If they didn’t, the house would be gone before morning.  The internet has transformed the real estate industry from “what is right for me” to “what looks good on a computer screen”.  My advice?  Never buy real estate sight unseen.  True, a good real estate deal won’t last more than a day, but if you can’t due your proper due diligence, you may get stuck with a nightmare.  And keep in mind, times are changing.  Don’t throw out a blind bid, because unlike a year ago, the house will most likely be there tomorrow… and the next day.

No doubt over the past year you’ve been asking yourself, “when is the price hike going to stop?”.  Depending on your location.  It may have already happened.  Do not be one of those hopeless romantic investors who believe that anything they buy will appreciate enough in a year to pay for itself, because it is not going to happen.  Everyone is accustomed to 15, 20, and 30% gains, and they don’t know anything but “boom-time-pricing”.  If you live in a place where home prices have grown at rates 5-10 times rents and wages, you’re in for a big correction.  However, there are still places like Seattle and Portland where job growth is strong and rents are pegged to jump.

The final key comment made in the video  is that the most heated competition has been seen between builders of new homes.  Why?  Because many new homes don’t close until they are actually completed, and buyers who put down deposits months before the market turn are walking away from the contracts.  Why?  Because they realize the house they bought is now worth much less than they paid for it.  This touches on my previous post on “investing in pre-constructed” homes.  You’re buying in today’s dollars something that will be delivered at a future date, at which time the true value might be completely different.