Is Another Real Estate Bubble Getting Ready to Pop?

OK, it’s Tuesday, but since Sunday was Easter I’m just catching up with my Soapbox Sunday post.  Many of us veterans in the real estate industry tend to keep a sharp eye on national housing market trends as well as an awareness of what is actually going on in our own neighborhoods.  The talk lately has revolved around the speed at which homes sales, prices and offers have increased just in the last 2 1/2 months.

Photo: Flikr – Steve Whis

As homeowners moved out of their short-sale or foreclosed homes during the last 5 years, large companies and smaller cash investors moved in to scoop up those single family houses to hold until the market began appreciating.  During the “holding time” these investors added, and are still adding, units to the rental inventory (those foreclosed families have upped the rental demand) all while increasing the revenue of property management companies.  Now that the flooding of foreclosed homes has slowed down due to banks holding inventory we are seeing many cases of multiple offers on houses that are now appearing on the market.  This is due to a decreased inventory of available properties.

I remember in early 2006 when friends and others came to me almost in a sheer panic telling me they had pulled money out of their savings or IRAs and were desperate to buy a house to fix up and flip so they could double their money in just a few months…could I help them find a house?  I responded to all of them with the same comment, “The bus is full and now is not the time to get on the bus, you should be getting off instead.”  A few listened to me while others simply found other Realtors who would sell them a house.  Later, in 2007, I heard from many of these same people that they should have heeded my warnings and were now holding on to empty houses that wouldn’t sell for what they paid for them.  Fast forward to March, 2013 and the tune has changed to “Aren’t there any foreclosures or inexpensive properties out there that I can buy and turn into a rental? The rent will more than offset my expenses and later on I can sell it make more money…don’t you think this is the smart thing to do?”

My advice again is:  “the bus is getting full”.  Unless you have someone who will rent your property for a couple years or you won’t get distraught if your investment house sits empty for months at a time while you pay the expenses then buying now might be a smart move.  Otherwise I would not get on the rental bus.  You see, when so many conversations revolve around making money by buying foreclosed houses, renting them out and later selling for big profits, I know now is not the time to “board the bus”.  As a former stockbroker with an international firm I learned to keep a clear eye on trends and cycles.  When normal people who never invested in the stock market came into the office, almost in a panic, to buy stock so they could make tons of money this was the signal to get out of the market.  I still maintain that philosophy when offering real estate advice and I prefer to err on the side of caution during these times.

What are your thoughts?

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