Qazzoo reviews some of the signs of a housing bubble and how we can keep from falling into the trap of over investing in a market that is about to turn bad. This market turning bad can be either locally or nationally. The local economy can turn bad or good more quickly than the national economy but both are subject to the same issues of increased pricing and speculators that inflate the prices tangentially.
When we look at a coming bubble we can see some of the signs before everything goes sideways.
First we need to look out for an increase in the population.
Rapid population increases mean more housing is needed. When there is a deficit of anything that is needed the price will go up to level off the need vs availability equation. Once the price point has been achieved the price is likely to stabilize. But what happens when the construction tries to catch up to the demand? The end result is often over building as more than one speculator desires to benefit from the need part of the equation. Overbuilding is always part of an increase in the population as slowing growth is still an increase and the lost revenue of not building is often worse than a slowdown in the number sales.
Populations increase and decrease for a number of factors. One is immigration from other states or countries. When California taxes became too high for many business to be able to justify staying in the golden state, many Californians and California based businesses migrated to Colorado. This is good for Colorado as the housing prices have increased. But what would happen if California elected a new political body that reduced taxes to the level of Colorado? The economy in Colorado could be negatively affected and the price of homes could go down substantially through no fault of anyone in Colorado.
These external forces cannot always be forecasted but they can be seen when they are occurring and understood for what they are and how they are likely to affect our real estate markets. An increasing population is good. A decreasing population can be catastrophic to the local housing market.