Will the Real Estate Bubble Burst?

There is a theory about real estate known as the real estate bubble. It is a theory that expects the “bubble” to burst. It focuses on the idea that real estate prices are over-inflated and home prices need to come down. In essence, real estate prices are over-valued.

Whe are real estate and home prices to high? There are three main underlying premises to understand:

1.There is no actual “national” real estate market.
2.The real estate market cannot “explode” or “crash”.
3.The market has limited relevancy to the shrewd investor.

Many people, when speaking of real estate, refer to nationally-known statistics. According to a report done by Fortune Magazine, the average residential real estate values have never had a down year since the 1960’s. That is quite an incredible statement. However, these numbers do not accurately portray the local real estate market.

When thinking of real estate, many often correlate it with the stock market. This should be corrected. The stock market is based on the national economy, and even the world economy. Real estate, on the other hand, is based on local economies and in some cases, micro-local economies. This should be nowhere placed on the same spectrum as the stock market. For example, what is happening in San Francisco does not directly correlate to what’s happening in Cleveland. There is no broad indicator as to measure all of the United State’s housing industry; however, interest rates are one thing that affects all of the markets.

For a better understanding of what is happening in your neighborhood, the best advice is to talk to a real estate agent, investors or lenders. You should never look at the nationwide, state-wide and sometimes even the city-wide statistics. You should be mostly concerned with the average prices in the particular neighborhood you are looking at and the changes in sales from the previous year to this one.

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