How to Determine if There Is a Housing Bubble in Your Neighborhood
Compare the cost of renting to the cost of buying in your community., Find a good real estate agent, and ask if he or she thinks there is a bubble., Look back in time and see how fast prices have risen., Check the price-to-income ratio in the local...
Step-by-Step Guide
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Step 1: Compare the cost of renting to the cost of buying in your community.
If the total tax-adjusted cost of owning--that is, the monthly mortgage payment plus taxes and insurance minus tax deductions for your home interest payments--is much higher than renting, the local market may be experiencing a bubble. -
Step 2: Find a good real estate agent
Ask other people, too.
Your accountant, financial planner, and friends may be able to provide valuable insights into market conditions, and--unlike a real estate agent--they have no interest in persuading you to buy a house. , Whether you're buying a home for a short-term investment or long-term residence, you want its value to appreciate.
Too much appreciation too quickly, however, could signal that prices are ready to take a plunge.
Nationally, the median home price increased 50% in a recent five-year period. (Source:
The Weekly Standard; April 3, 2006).
That sort of rapid growth concerns many analysts. , This ratio compares the median home price to the median salary in your area.
Historically, the price-to-income ratio has hovered around 4 to 1, but recently the national figure has grown to 8 to 1, and the ratio is even higher in some areas (The Weekly Standard).
When homes are no longer affordable, it's likely the market will adjust.
In other words, a bubble may be ready to burst. , Your local newspaper is a good place to start, but you should also check good Internet sources.
A search engine query for "housing market," "home sales," or "housing bubble" can turn up useful results, including the latest news and analysis for major metropolitan areas. -
Step 3: and ask if he or she thinks there is a bubble.
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Step 4: Look back in time and see how fast prices have risen.
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Step 5: Check the price-to-income ratio in the local housing market.
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Step 6: Research your housing market thoroughly.
Detailed Guide
If the total tax-adjusted cost of owning--that is, the monthly mortgage payment plus taxes and insurance minus tax deductions for your home interest payments--is much higher than renting, the local market may be experiencing a bubble.
Ask other people, too.
Your accountant, financial planner, and friends may be able to provide valuable insights into market conditions, and--unlike a real estate agent--they have no interest in persuading you to buy a house. , Whether you're buying a home for a short-term investment or long-term residence, you want its value to appreciate.
Too much appreciation too quickly, however, could signal that prices are ready to take a plunge.
Nationally, the median home price increased 50% in a recent five-year period. (Source:
The Weekly Standard; April 3, 2006).
That sort of rapid growth concerns many analysts. , This ratio compares the median home price to the median salary in your area.
Historically, the price-to-income ratio has hovered around 4 to 1, but recently the national figure has grown to 8 to 1, and the ratio is even higher in some areas (The Weekly Standard).
When homes are no longer affordable, it's likely the market will adjust.
In other words, a bubble may be ready to burst. , Your local newspaper is a good place to start, but you should also check good Internet sources.
A search engine query for "housing market," "home sales," or "housing bubble" can turn up useful results, including the latest news and analysis for major metropolitan areas.
About the Author
Joan Gutierrez
Specializes in breaking down complex crafts topics into simple steps.
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