BEATING A HOUSING BUBBLE
How do you recognize signs of a housing bubble?
Thatís the question many prospective homebuyers -- and current homeowners -- are asking themselves these days. As home prices rise at 20% annual rates in some areas, many wonder if residential real estate is falling prey to the same kind of wild speculation that has led to the stock marketís spectacular downfall.
time thereís a disconnect between prices and the underlying value of homes, as
measured by their market rents, thereís the potential for a bubble.
If home prices are rising much faster than rents, thatís a strong indication a bubble is forming.
If home prices are rising while average rents are falling the bubble is pretty much unmistakable.
could trigger a collapse?
Identifying a bubble and actually predicting when it will burst are two very different matters, of course. The nature of a bubble is to feed on itself, with rising prices convincing more and more investors that prices can only continue to rise.
|Look for undervalued properties.
Even in the wildest markets, there are ugly ducklings -- flawed homes that
others overlook. If the defects are fixable, you might be able to get a
relative bargain and be in better shape than your neighbors should prices
||Buy defensively. Homes in good
neighbourhoods with good schools tend to hold their values better, real
estate agents say. Single-family homes usually fare better than flats, which
often are the first to lose value in a real estate recession and the last to
regain it during a recovery.
||Stay put. Find a home you can
live with for awhile. The people who get hurt the most during real estate
recessions are those who are forced to sell, usually because of a job change
or because they couldnít really afford the home in the first place. If you
can hang on to a home for five to 10 years or more, you improve your chances
of being able to ride out a downturn and at least break even when you sell.|
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