Are you buying in a bubble?

Are you buying in a bubble?

It is folly to pretend to be able to predict any real estate market. A year ago, I got this email from Kiplinger

[italics mine]

June 10, 2013:
“Home prices soaring by 20% or more over the past 12 months. Bidding wars. Houses sold just days after the for-sale sign goes up. Is another housing bubble developing? At Kiplinger, we don’t think so. There are huge differences between what we see happening today in even the hottest of real estate markets and the tulipmania of last decade. The extreme heat in today’s market is a short-term phenomenon, born of a temporary imbalance between supply and demand. Come 2014, if not sooner, the pace of price hikes will ease, as builders rush in to beef up supplies of new homes, more homeowners – reluctant to sell at a loss –are no longer underwater on their mortgages, and additional properties come through the foreclosure process…”

Last year, Kiplinger got it wrong. Prices are still going up. The expected short-term supply limitation has not let up in the greater Boston area. The reason continues to be high demand for houses and condos in prime areas.

moneypileThe presence of a professional-class of buyers with high incomes, plus the influx of international investment cash buyers, plus cash buyers using inherited wealth is driving the inflation. The local income-driven economy cannot sustain the current market. At some point, investors will determine that this market is too inflated to be worthwhile. They will move on, and prices will drop again.

In the spring of 2014 — in some towns (and in some parts of other towns) — prices are continuing to act in a bubble-like fashion. Outside of the “hot” zones, the market it behaving more normally.

 

How can you, as a buyer, tell the difference between what Kiplinger called “tulipmania” and a market rising because of normal supply and demand changes?

1. Do not make any offers until you have been house-hunting for at least three weeks.
2. In those three weeks, go to places that have just come on the market. Track those properties. Have they all sold in one week or not? If your price range and house criteria is in a hot zone, about half of all properties will sell in a week.
3. If you are in a “hot zone” be prepared, so that you can make an informed decision quickly.

The stats:
On average, all properties are selling at asking price, or above. However, this is an average. So some are lower than asking to compensate for those that are bid up over asking price. When you realize that some properties are being bid up $30-50,000 or more over asking, also realize that many are going for less than asking to balance that out.

 

 

By | 2016-12-28T14:01:11+00:00 June 25th, 2014|Categories: House Hunting, Market data and conditions|

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