Real Estate Investing: Should You Buy A Home Now In The Midst Of The Real Estate Bubble?
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I have been watching this "housing bubble" for the past four years. Twice I thought about buying a home and both times I backed out based on the fear of being caught upside down on my mortgage if this real estate bubble should burst.
The skeptic in me kept saying "surely the housing market will collapse; I would be foolish to buy now". I speculated that if I waited long enough I would be able to buy a house cheaper than at current levels. My speculation so far has turned out to be false. On the other hand, in 2006 many of the interest-only mortgages out there will have to start paying principal. Also, adjustable rate mortgages, while popular right now, will see their rates increased in the next two years.
The doom-sayers keep predicting a bursting of the housing bubble. Even Alan Greenspan has cautioned The Public about the over-heated housing market.
So where does this leave us consumers who may be looking to buy a house in this current market?
Well I have to revert to the clichéd three L's of Real Estate:
Location, Location, Location!
I wrongly thought that the market here where I live in Southern California would crash as the housing prices have become absurdly high. That was four years ago. In speaking to realtors and mortgage financers, I learned some interesting facts about my particular area.
Now, of course, mortgage financers, realtors, and lenders want you to buy a house and finance the purchase of that home through their agency or bank. So my initial reaction to their reasoning as to why the housing bubble (at least where I live) will not ever burst was skepticism.
But this is what they said: A major university close to where I live is planning a major expansion. Over the next decade they seek to increase their student population by 10,000 and their faculty by 2,000. Thus, there is going to be demand for housing for at least the next ten years in this area.
Secondly, they explained that a lot of foreign money was pouring into the Southern California housing market. These foreign interests keep buying real estate and have showed no sign of slowing, no matter what the price.
These two factors alone are enough to help keep housing prices in my area fairly stable. I still think that we may see a 10% decline in real estate value over the next 5 years, but that is a far cry from the bubble bursting.
My greatest fear was to buy a $900,000 home and end up with it being worth $600,000 a year later.
This brings up another point. I feel flipping real estate in this current market is becoming ever the more risky. It is hard to imagine home values rising fast enough in a short period of time in order to flip the property for a decent profit. Three years ago yes; but not anymore, except perhaps in certain key areas.
In short here is my opinion:
Yes, I do think it is still safe to buy a home in this current market with the one caveat that you really need to study the area in which you intend to buy a home. It is possible for the housing market to crash nationwide while your home still maintains most of its value due to its location. Take a look at the rate of new home building in your area versus planned expansions. Also look at your local economy. Is it stable? Are there viable employment opportunities for people living in the area? Is your local economy recession resistant due to the nature of its industry?
Lastly, regardless of the housing bubble and this current real estate market a house is still a great long-term investment. So as long as you are not planning to flip the house or hold it for a few years before you sell you should be ok. Housing values historically double every 10 years.
With that in mind, if you plan on buying a home for the long run, I would not concern yourself with the current real estate market too much and focus more on getting the best mortgage rate you can. I personally would not recommend interest-only loans or adjustable rate mortgages (ARMs), though for certain situations they do have great application.
Also, stick with the 30-year mortgage rather than the 40-year mortgages being offered.
DISCLAIMER: The article is OPINION only and not meant to be professional advice. Please do not buy or sell a home based on this article alone. Please contact a professional realtor or mortgage broker in your area for expert advice.About the Author
By: Lender56
Lender56 operates the Lending Tree Blog, a resource site for home loans, real estate, mortgage news, and mortgage brokers.
This article may be freely published as long as the link to Lending Tree Blog remains intact.
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