it’s difficult to see a housing bubble while you’re in one … but there are some telltale signs.
If you experienced the bubble of 2008, the last time the housing bubble burst, you’re probably (and understandably!) gun-shy about jumping into the housing market again. If you buy during a bubble, overpaying for your home, you might be forced to sell for less than the property is worth — either that or stay put longer than you’d like until you build up enough equity to sell. So if you’re thinking of buying, it’s important to have a sense of the signs that point to a real estate bubble.
Here are two big signs of a housing bubble!
Leverage
When you take out a mortgage, you’re leveraging your money — the smaller the down payment you make, the more you have leveraged the deal by using the lender’s money to make the purchase. A bubble means lots of leverage! About 45% of the transactions are cash. And for the price points below half a million dollars, the average person puts about 35% down.
Home prices rising faster than salaries
When housing prices are rising and your salary isn’t, you’re left with two options: continue to rent, or buy a house you can barely afford. If you think your market is in a bubble, you might want to wait to buy, especially if you’re really stretching to make ends meet. To ascertain if you’re in a bubble, review the mean income levels and employment levels compared to real estate prices for signs of discord.
So what do you do when affordability isn’t improving in pricey markets like Green Hills, or any other high-cost market? Buy in the burbs! Suburbs of Nashville are increasing in popularity.
