Ever since the big real estate crash in 2008, most people thinking about purchasing Irvine real estate know a real estate bubble can be financially dangerous. An excessive amount of demand can cause prices to skyrocket, but eventually the demand for properties drops and real estate prices take a nosedive. However, it can be a little tricky to tell if you are in a bubble unless you know what to look for. These 5 signs can help you determine if your local real estate market is a bubble.
1. Home Prices Rise Quicker Than Salaries
Some inflation is expected of course, but quickly rising prices are a danger sign when paired with a lack of salary increases. This means the cost of a home will eventually outpace the buying abilities of the average professional. If property prices are rising at a rate that is not comparable to other costs in the local economy, it leads to unsustainable costs that could cause a burst bubble.
2. Loans Are Given to Risky Investments
Though this sign of a real estate bubble is not as obvious anymore, you can still see subtle signs of this symptom. Lending agencies that give out loans to almost anyone allow homeowners to sell their properties for higher amounts. Over time, these loaning practices can lead to soaring real estate prices. The high prices make buyers think real estate is an even better investment, causing more demand and further increasing the bubble.
3. Properties Are Purchased for Flipping
Flipping homes by renovating them and reselling them is always popular among some people, but be cautious if you notice everyone suddenly seems to be obsessed with flipping. This happens because the constant increase in prices leads to a higher rate of house flippers and a lower rate of people who want to live in the homes they purchase. When even completely inexperienced people are purchasing multiple homes to flip, a bubble is most likely occurring.
4. Down Payments Get Lower
When buyers make small down payments and rely on loans for most of their purchase value, they are leveraging the deal with a lender’s money. In a bubble, there is a lot of this leverage going on because people assume the property will continue to retain its high value. However, this type of lending practice can cause severe economic issues when a bubble bursts.
5. New Housing Is Being Constructed Everywhere
The soaring home prices that occur lead to a lot of interest in real estate investors. People construct new suburbs and apartments to take advantage of the sudden increase in demand for property. Over time, the increase in housing outpaces demand, leading to an oversupply. Properties remain vacant instead of being sold instantly, which ultimately causes prices to drop.
If you are considering purchasing a home but are concerned about the possibility of a bubble, find a realtor in Irvine who you can trust to steer you in the right direction. At OC Residential, we can help you find the home you’re looking for and offer advice on how to approach the current market. For more information, call 714-454-6304 today.