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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 heat 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. About The Author Copyright 2004 realestateinvestment.net Michael Setz is an author and the founder of www.realestateinvestment.net - The network for successful real estate investors.
MORE RESOURCES: The Folly of China's Real-Estate Boom Was Easy to See, but No One Wanted to Stop It The Wall Street Journal Judge Approves $418 Million Settlement That Will Change Real Estate Commissions - The New York Times Agencies' headquarters in DC remained 'nearly empty' in 2023, real-estate board finds Federal News Network Former HGTV star gets jail time for real estate fraud KFOR Oklahoma City reAlpha Tech Corp. Launches Claire, Real Estate's First AI-powered, Zero-Commission Smart Buyer's Agent Business Wire Real estate transfers in Adams County from April 15-19, 2024 – Muddy River News - Muddy River News Blackstone's Beleaguered Real-Estate Fund Stems Exodus The Wall Street Journal The Highest Paid Execs in Real Estate Mike DelPrete Better Homes and Gardens Real Estate Metro Brokers extends affiliation agreement for 10 years Atlanta Agent magazine Who's Who in Residential Real Estate 2024: Berkshire Hathaway agents - Pittsburgh Business Times Pittsburgh Business Times Massachusetts housing crisis: Greater Boston Real Estate Board campaign slams transfer fees Boston Herald Quebec Real Estate Investor Luc Poirier Looks to South Shore Brossard for Future Growth CoStar Group Alabama Realtors release March 2024 Economic and Real Estate Report Alabama Political Reporter Reversing the Real-Estate Doom Loop Is Possible. Just Look at Detroit. The Wall Street Journal Real-estate agent's ritzy Hamptons home used in fake Airbnb scam Business Insider Recent commercial real estate transactions - 4/24/24 BizTimes Milwaukee Kevin Owens joins Scottsdale-based Lessen real estate company | Scottsdale Independent Daily Independent What changes to real estate industry commissions could mean for you | Dollars & Sense ABC10.com KXTV Baltimore City: See how much real estate prices increased the week of Dec. 11 - The Baltimore Banner Baltimore City: See how much real estate prices increased the week of Dec. 11 The Baltimore Banner I'm A Real Estate Agent: Here's What Will Happen to the Housing Market If Rent Keeps Rising Yahoo Finance Chris Hemsworth's Homes: Inside the Marvel Star's Real Estate Portfolio Architectural Digest Big changes coming to commissions in July ABC10.com KXTV Santander now servicing $9B NY real estate portfolio previously held by Signature Bank Long Island Business News Wood-Ridge NJ man found guilty of 2012 murder after retrial NorthJersey.com Collierville shopping center sold to Atlanta-based real estate firm - Memphis Business Journal Memphis Business Journal People and Property: Real Estate and Construction News From Around NH New Hampshire Business Review Pod People on KWTX@4: Meet the podcast host of "Mosaic - The Stories of Real Estate." - 4.24.24 KWTX Real estate taxes due April 30 for Codington County property owners Watertown Public Opinion Real Estate Group Plans Anti-Transfer Tax Campaign State House News Service The World's Wealthiest Individuals Are Focused On Real Estate - Here's How You Can Build Your Own Real Estate ... Yahoo Finance Acore Capital raises $1.4bn for US real estate debt fund IPE Real Assets @properties and Christie’s International Real Estate opt to settle broker-commission lawsuits Chicago Agent magazine Woman shocked to learn her Hamptons home was fraudulently listed on Airbnb after call to wire $25K New York Post 'There's just not enough listings out there': A look at the Milwaukee-area's real estate market WUWM FLAGSHIP COMMUNITIES REAL ESTATE INVESTMENT TRUST ANNOUNCES CLOSING OF APPROXIMATELY US ... Yahoo Finance Sponsor our real estate and development series Racine County Eye Housing Market Alert: Mortgage Demand Dips, Will Prices Crash? Norada Real Estate Investments Fennemore renews Biltmore lease with smaller footprint amid firm's national expansion - Phoenix Business Journal The Business Journals Core equity real estate index posts another quarterly loss Pensions & Investments Boston Real Estate Board readies campaign against transfer fees The Boston Globe Real estate group launches campaign to defeat transfer tax - Boston Business Journal Boston Business Journal Choice Properties Real Estate Investment Trust Reports Results for the Three Months Ended March 31, 2024 Business Wire Earnings call: Alexandria Real Estate Equities posts strong Q1 results By Investing.com Investing.com Woodsist Festival Announces 2024 Lineup Feat. Yo La Tengo, Real Estate, Jessica Pratt, & More Stereogum Banks Believe They Are Well-Prepared for Commercial Real Estate Fallout The Wall Street Journal A Look at the Real Estate Market in Milwaukee's Suburbs (2024) Milwaukee Magazine Judge approves real estate commissions settlement Yahoo! Voices Woodsist Festival 2024: Yo La Tengo, Real Estate, Jessica Pratt, Bonnie 'Prince' Billy & more Brooklyn Vegan Real Estate Sales Include Two Falconer Commercial Properties Jamestown Post Journal Real Estate Transactions Business West Who's Who in Residential Real Estate 2024: The 25 top-selling Realtors in Pittsburgh - Pittsburgh Business Times The Business Journals Invest DSM moving forward with The Commons at Highland Park Local 5 - weareiowa.com Is The Housing Market Going To Crash? Bankrate.com |
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