The housing bubble is a hot topic today; Annual appreciation and home prices have never been higher in most US markets. While personal incomes have risen in the single digits over the past four years, home prices have increased by double digits. Home prices in some markets will reach levels in the next two years that will be unaffordable for most first-time homebuyers. As with any market, once one part of the market is unable to participate, it will affect other areas of the market.
Market timing in overheated real estate markets will be key in the next two years. Those waiting for the top of prices could have some over foreclosed property. Understanding when to take profits before demand weakens is an art that most inexperienced individual real estate investors should have learned from their experience of the dot-com crash of 2000.
When is the time to leave? Look for incentives from builders on completed new buildings or homes; this indicates an oversupply of new units. Research the days on the market or the amount of time the property has been on the market. If the typical time recently has been 30 days for properties sold and now market times for most properties sold are 60 days or more, the market is weakening. Home prices and mortgage rates affect each other, as interest rates fall, more buyers can afford to pay for a home, but as rates rise, buyers can afford a lower purchase price. Look at interest rates as an indicator of deflating prices.
Make sure you have a chair when the booming music from the real estate market stops.