subject: Understanding How Real Estate Bubbles Affect Us [print this page] Understanding the real estate market these days can be a bit overwhelming, but if you think of it as a bubble then it's much easier to understand. Basically, the market swells up like a bubble and during this time prices are great for homeowners to sell. However, eventually it bursts (like any bubble) and the prices crash.
We understand the market isn't going to completely disappear when it comes to real estate, because everyone needs a place to live. Unfortunately owning a home is a dream and some people never get the chance. The good news is even those who never thought it was possible can take advantage of the recent economic chaos that left the housing market in shambles.
Another way to explain real estate bubbles is thinking of a natural economic cycle. There will be a time when the prices soar and there will be other times when they crash. Most people panic when the crash occurs, but some individuals take advantage of it and turn this frown upside-down, so to speak. It becomes a business and they retain constant profits from their efforts.
Any real estate investor would be excited about purchasing property when the bubble bursts. This is because they will be able to get great deals since the prices will be low. During this time, families will be saving their money and looking at the housing market with a keen eye. The investor and other professionals will already know they can resell them for higher prices when the bubble begins to swell again.
In order to make this happen investors have to be financially secure. After all, in most cases they will not receive an immediate profit from the home that is purchased. It's all about holding on to the property and maintaining it until the bubble swells and it is time to sell. Sometimes this can be a huge expense, especially if the market is slow.
If you haven't noticed we are in the beginning stages of a very slow pick up. Anyone who purchased a home back before the housing market burst was likely devastated by how far their land decreased in value. Some have taken it to the extremes and given their homes back to the bank instead of waiting it out.
Others were forced to hold on to their homes even if they wanted sell. It's a touchy situation and if you're not sure where the housing market is headed then maybe you even considered selling your home off for a loss.
The good thing about real estate bubbles is they always correct themselves. When prices simply become too high the bursting of the bubble is a way to bring things back down to realistic prices. Yes, prices may go unbelievably low before they get back to "normal" again, but for many people the super high prices are just as bad as the super low ones.
The winners in a real estate bursting bubble are those that are able to purchase a nice home at the low end of the market and benefit from increased value down the line.
