|The Real Estate Bubble Fallacy
There has been a lot of talk lately about the "Real Estate Bubble", and a lot of
folks are asking the question: "When it is going to burst"?
They are saying that the market just can't sustain this level of growth and appreciation much
longer, and I hear them say that it is inevitable that it must come crashing down soon. People are
worried. They don't think it can last; That whatever goes up, must come down.
These folks have been conditioned to believe what they believe most likely from the experience
of the stock market bubble of 2000, and maybe the 1990's when the real estate market was hit hard in
many large metropolitan areas across the country.
Its human nature to feel this way. We all know the saying (or the 80's tune for you big
hair folks), "Once Bitten, Twice Shy". Or what about, "All good things must come to
an end."? Its how we react to almost everything that affects our well being and general safety.
Its a subconscious reaction at the gut level.
Just like in the stock market, there are bulls and bears. Bulls are typically more optimistic
about the market and expect it go up, and bears are generally more pessimistic and expect the market
to go down. They will always be there to provide free advice and "expert consulting".
Remember though, who you decide to listen to will certainly have an effect on your decision making,
and ultimately your success.
Well, I'm here to say that there is no real estate bubble! There never was a real estate
bubble. Its a complete and utter fallacy.
"How can I say that?" you ask. I can say that because the real estate market is
in reality, a Wave. Its a cycle, and we just happen to be riding the big swells, or the crest of
this long, consistent, and fairly predictable pattern.
There is no doubt that real estate has been a rock solid investment for decades, and will
continue to be for the foreseeable future and for many reasons that I would like to demonstrate
here and now. Because you, as a real estate investor, must be able to move forward with confidence
when deciding which projects and properties you want to buy and sell. That is the purpose of my
website, www.realestateinvestment.net, to provide
you timely information, strategies and techniques to help you succeed.
But first, what is a bubble? In terms of economics and markets, the best definition is
probably something along the lines of "an isolated or ephemeral situation or condition with
little support or substantiation from external conditions".
The best example, and the one foremost in the minds of us all, is the stock market tech
bubble of 1999 and 2000. We all rushed into the tech stocks and the stock market in general as we
saw the .com millionaires being made.
Y2K was a big factor in the tech bubble. People were buying new systems at a unprecedented
rate in order to prepare for doomsday. People were also buying consumable goods to stock up for the
dreadful event that never came.
So what was holding up, or supporting the "irrational exuberance" as Alan
Greenspan characterized it? Well, we learned soon afterward, not much. It was an isolated, temporary
incident that had little support from the other conditions. It was indeed like a bubble that burst.
And it has had little support since then. Historically speaking, after the stock market
crash of 1929 and 1987, it took decades for the market to recover, although it did eventually recover.
Just look at the Dow average and the S&P average for the last hundred years and see the pattern
of recovery. You can be sure that a slow steady rise for stocks is in progress.
Now back to real estate. Let me explain why this is not a bubble.
Real Estate is Cyclic
Real estate has had its ups and downs over the years, but it is generally stable, with no
drastic swings per se. If you were to look at the cycles on a chart you would see a clear pattern
of gently rolling swells. This pattern is consistent across cities and regions all across the United
states, although slightly varied in degree.
In addition, the cycles tend to favor the ups rather than the downs. It is not uncommon to
see large cycles of appreciation and much smaller downward cycles. In other words, the current
double-digit growth we've all come to know and love in recent years will likely be followed by
downturns of single digit declines. Its like taking two steps forward and one step back.
In the big picture you will still be further ahead than when you started. You may see slower
growth, but it will still be growth.
Real Estate is a Basic Necessity
People need to live somewhere. They need a roof over their head and their children's heads.
Like food and clothing we must have a home. People don't need stocks or bonds. Therefore, you can
be sure that whether the market is high or low in growth, whether interest rates are up or down,
people will be buying, renting, leasing, and selling homes. It is as perennial as the years.
This Real Estate Wave Has Been Around Awhile
I don't know when you first realized we were in an up market in real estate, but it has been
on a solid upward trend for at least the last 3-4 years. It didn't just happen yesterday. Of course
like anything else, awareness of the general public is a bit latent, and dependant upon the media.
It has only been lately that the media has really focused on it and thrust it onto the front page.
The old adage "Success breeds success" is also true. The momentum will grow as
other more traditional investors continue to jump on the band wagon and pour their money and
resources into real estate investment. It tends to create a perpetual, self-feeding market that is
ideal for more seasoned investors.
Real Estate is Local and Regional
It is true that even in today's real estate boom, there are areas in the United States that
are not enjoying the high rates of return that others are experiencing. California is a fantastic
place to invest, so is Arizona and a host of other places.But the Rust Belt states are not as
fortunate. Watch what happens to Florida home values after this horrendous hurricane season. This
is because real estate is driven by the primary capitalistic force of Supply and Demand.
Generally speaking, property values increase in areas where the job market is strong, and
where there are more people moving into than away from. Of course there are other factors to
consider; including interest rates, availability of funding, climate, and governmental policies.
These are all important and you must be cognizant of their impacts to your strategy.
However, it is true no that matter what the rates are or how nice the climate is, people
will continue to migrate where there are abundant job markets and affordable housing. If you can
stay just slightly ahead of that migration, you will profit immensely.
Real Estate Investing is Diverse
You can invest in so many different ways, from foreclosures and fix and flips, to buy and
hold and everything in between. Right now the commercial space is relatively soft. It will recover
no doubt, but people investing in single family homes are probably doing slightly better in returns.
Vacancies are up and rents are down for commercial properties, but fortunately, the forecast is for
this sector to improve over the next few years.
The key to successful real estate investing is to understand the forces, trends, and
conditions that are driving the market. BE AWARE of your surroundings; Read articles and stay on
top of industry news; Look in your own area at the job market and forecasts. Check my website
www.realestateinvestment.net for all the news and
information you need to help you succeed in your real estate investing career.
There is no real estate bubble, but there is a real estate wave. Like any dedicated surfer,
when the surf's up, get in the water and catch a wave! But watch for danger, be flexible, and be
smart. Invest wisely and you can prosper in any real estate market.
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