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Don’t Fear A Bubble Burst

bubbleWith home prices continuing to escalate, many folks are getting a bit nervous with the thought that we might be experiencing another real estate bubble (and the subsequent dreaded bubble burst.)

Are these fears founded? Not at all, according to many sources I’ve read over the past several months. The only things in common between our market now and what was going on in the early/mid 2000’s are strong investor activity and increasing prices. This may SOUND like enough to cry “BUBBLE” but really, those two issues are not nearly enough to sound an alarm.

Back in the “bad old days”, the real estate market had been fairly stable for awhile when suddenly housing became the IT investments. People suddenly wanted to get in on the act, and many investors were either taking out mortgages or borrowing money for a short term at high interest, with the idea that they would be able to sell the home within a couple months, pay off the money they borrowed plus a bit of interest and walk away with a tidy profit. Lenders were making increasingly risky loans, including ones that didn’t require the borrower to demonstrate an ability to repay the loan and loans that did not require any down payment contribution from the borrower.

For a good portion of the dark days after the bubble burst to current times, cash has been king. A large percentage of homes were, and still are, being purchased with cash up front. Lenders tightened their requirements, and despite historically low interest rates, borrowers have not only been finding it a lot more difficult to obtain mortgages, they have been required to bring in fairly significant sums towards the down payments.

According to a report recently published by real estate website giant Trulia, asking (or list) prices decreased slightly for the period of May-July 2013 compared to the previous quarter in a majority of metropolitan areas. The Las Vegas area leads the nation with a 5.2% drop. The fact that Las Vegas tops the list comes as no surprise to experts, as our market experienced one of the most dramatic plunges after the bubble burst and subsequently saw one of the most meteoric rises in prices. This slight retraction of asking price is actually seen as a good thing, as it means that the market is stabilizing and returning to a more sustainable growth rate. And that is the best thing for the future of the Las Vegas real estate recovery, and that of the nation.

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