Real estate has its ups and downs, like any investment, but when you’re dealing with a bubble, the risks are much higher. Many people are hesitant to invest under such circumstances because the risk of loss is high. However, if you’re struggling in real estate now, the problem isn’t a housing bubble.
What is a housing bubble?
It’s not uncommon for agents and investors to throw around the term “housing bubble” without truly understanding what that means. It’s aptly named a “bubble” because it has the potential for high returns, but it’s very fragile. If we were in a housing bubble, we’d see a brief period of high demand for the market, which would drive up prices temporarily.
It’s great for investors for a time, but before long, the demand begins to decrease while the supply increases. The prices suddenly drop and the bubble metaphorically bursts, leaving many people a little less economically comfortable than before.
A housing bubble was one cause of the recession of 2008. The housing market was sitting pretty right before the crash. However, the supply soon outweighed the demand, and investors found themselves with unprofitable investments that challenged their economic stability.
Are we in a bubble?
Right now, some argue that we’re in a version of a housing bubble, but it’s much different than before the recession. Home prices are surging, but there are some key factors that hint the current housing situation can’t be classified as a typical bubble.
It’s true that housing affordability is declining as homebuyers are feeling more stretched, since home affordability has reached a multi-year low, according to Newsweek. Only about 28 percent of newly built homes are priced below the level of affordability ($250,000) across the U.S. There’s also a higher supply of high-end housing and hundreds of thousands more apartment units being constructed for 2017.
Home prices are rising steadily, which certainly indicates a housing bubble. However, most would agree that this housing bubble looks a little different than the one that sent us into a recession several years ago. For one thing, the markets are cooling off gradually rather than all at once. Gradual changes shouldn’t cause a burst.
Additionally, these prices are being driven by a lower supply of homes for sale, as well as low mortgage rates. This is a big difference from the previous recession, which was largely driven by faulty mortgage products.
The general consensus is that we’re in a type of housing bubble, but it’s not as scary this time. The risks of a burst are much lower as we continue recovering from the previous market burst.
Why you’re struggling in real estate
It’s tempting to blame your poor real estate investing on a housing bubble, but the facts don’t support that argument. It’s better to look more closely at your strategy and see what the real problem is. If you’re not doing well in real estate right now, it could be due to one of these factors:
- You’re in a bad housing market. Although real estate is performing well across the nation, some areas still haven’t fully bounced back from the recession.
- You aren’t utilizing a great Realtor. Oftentimes, investors try to learn the market and approach real estate ventures on their own. However, you’re much better off with someone who spends every day analyzing the market you’re after. A great Realtor can make all the difference here.
- You don’t have the experience and resources to keep up with the competitors. Competition is tough, but you can acquire the tools and skills you need in time.
- You’re not smart with financing. Are you fully exploring your options for funding investments? There may be some financing alleys you haven’t walked yet. Better rates and stronger backers could be out there.
- You’re trying to do it by yourself. Most Realtors have a team including brokers, inspectors, property managers and other helpful personnel to perform regular tasks.
- You’re bad with cash flow. You will always be able to spend money faster than you can make it. If you’re letting this get the better of you, your investment strategy can suffer as a result.
- You aren’t taking advantage of digital marketing. About 90 percent of homebuyers use the internet during the home search process, and if you aren’t taking advantage of the digital marketplace, you’re alienating some of your options.
These are just a few of the many factors that could be influencing your real estate strategy. It’s easy to blame the market when it’s performing poorly, but when you’re part of a steady market, like the present, you have to face the fact that your strategy might need a few changes. Take a closer look, and don’t be afraid to change for the better.
Anna Johansson is a freelance writer, researcher and business consultant specializing in entrepreneurship, technology and social media trends. Follow her on Twitter and LinkedIn.