4 Signs You're in a Housing Bubble

It's not always clear to buyers and sellers when they're in the middle of a housing bubble. This is because their perspectives can be compromised by the sheer weight of the numbers in front of them. Plus, certain markets, such as San Francisco or Los Angeles, have proven that prices can continue to rise for years at a time—even as experts say that the good times won't last much longer. However, Roma Hills new home buyers can look for specific signs to see if their dream home is located inside a ready-to-burst bubble.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

Home Prices Outweigh Salaries

If people in a neighborhood are making relatively modest incomes but living in outrageously valued homes, it's a sign that the market may be out of balance. Unless a car plant, major warehouse or tech headquarters is opening in the area in the next several weeks or months to account for the price hikes, buyers may want to look at a different neighborhood as a way to avoid getting caught in the storm. Talk to a real estate agent to find out more about the discrepancies between salaries and home prices.

Banks Are Eager to Pass Out Loans

Despite the Great Recession, there's still evidence that too many people are receiving loans they may struggle to pay back should their financial situation drastically change. Financial experts may become nervous should there be too many approvals and too little government interference to sustain certain markets. Buyers who are approaching mortgage lenders who may be a bit too eager may want to reconsider either the lender or the area they are searching in. A trusted lender, mortgage broker or financial planner can give potential home buyers more information about the current state of lending and whether or not it can keep up with the expected demand.

Interest Rates Are High

The higher the initial interest rates are in a neighborhood, the more likely it is that lenders are seeing a high rate of default. In this case, the lenders are trying to compensate for a lack of timely payments by means of their new applicants. Buyers should be paying attention to the local climate in the neighborhood as well. It only takes one economic event (e.g., a local business closing, etc.) to cause interest rates to swing from low to high. Once new buyers perceive a city to be on the decline, the housing bubble will usually burst soon thereafter.

Outside Interest Wanes

While not a hard-and-fast rule, buyers are more likely to spot the bubble if they live well outside the neighborhood rather than in the middle of it. If outside interest has started to wane for the neighborhood, this could be a sign that investors and buyers have spotted something that you haven't. Obtaining this information may be as easy as listening to the gossip around town, but buyers can also check tourism rates for a slow-down or talk to a real estate agent to find out more about who's showing the most interest in the market.

Market fluctuations are precipitated by a number of factors that conscientious buyers can spot if they know how to look. From researching salary information to finding out more about foreign interest in the market, buyers should be willing to go the extra mile if they want to avoid buying a home before prices start to decrease.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.