12 Signs Of A Real Estate Bubble

by Silicon Valley Blogger on 2006-09-2510

Some time ago, there was a huge boom in the United States real estate market, which for the most part, floated all boats. But in California in particular, the property market has become insanely inflated over the years, given that in this little piece of paradise in the West Coast, you are basically buying the weather. Purchasing any kind of real estate during a hot, sellers’ market would be against my buy low, sell high strategies, so my real estate investing plans will be put on hold until the markets soften.

What are the signs of a toppy, frothy real estate market? How about if:

  • you see a crumbling, rundown shack on undeveloped land with a flyer listing it for $1,300,000. Okay, that’s too obvious.
  • everyone you know and their brother is becoming a real estate agent/broker/loan consultant.
  • you see a house change hands in a span of two years after a few coats of paint and new plants in the yard.
  • everyone you know and their brother is talking about opening a home equity line of credit at 6%, 7%, 8% APR so they can cash out to buy more property.
  • all those people who say they would be great landlords don’t even own their own homes yet.
  • the guy who sits next to your cube spends most of his time scouring the internet for new homes in the flood plains as potential “investments”.
  • that same guy turned himself into a real estate AND mortgage broker in two months time (wow, you get two skill sets and services for the price of one!).
  • your day care provider closed her school down to become a real estate agent who advertises on the community pages. You see her beaming face on ads for foreign property. She invites you often to sales presentations held at what used to be the kids’ play den.
  • someone you know who used to live in a hovel now lives in a mansion reminiscent of Palm Springs replete with faux flagstones and a spillover pool and spa designed as a mini Niagara falls. Oh yeah, she’s a real estate agent too.
  • people are combining forces and families to pool their financial resources together to snag their first house, which is over $1,000,000 but with 5 bedrooms and 4 baths. Oh yeah, around three families will be living in this mcMansion (read: a house which is bigger than the lot it sits on).
  • your junk mail is 50% offers for refinancing, lines of credit, real estate agents’ cover letters and the flyers of homes they are selling
  • your mobile dry cleaning guy is moonlighting as a real estate agent. Or is he an agent now moonlighting as a dry cleaning guy.

real estate property housing California

I swear all these are true, and are my own personal encounters with real estate mania. I could go on and on but you get the picture. It’s been ridiculous for so long that I felt compelled to regularly visit this site; and for the good length of time that I’ve followed it, it would say the same things over and over (housing bubble will lead to crash — yadda yadda and repeat…) and yet, the market wouldn’t budge anywhere but up. Except now. Finally there are signs that the market is cooling. It’s about time. Now in a couple of years, I can think about jumping into the glut of underpriced properties or foreclosures and becoming that person I’ve always aspired to be…. a landlord.

Copyright © 2006 The Digerati Life. All Rights Reserved.

{ 6 comments… read them below or add one }

Irene November 7, 2006 at 6:01 pm

my thoughts exactly

John Corey March 27, 2007 at 3:44 am

You wrote the following: “Now in a couple of years, I can think about jumping into the glut of underpriced properties or foreclosures and becoming that person I’ve always aspired to be…. a landlord.”

As a rational investor have you set a benchmark or otherwise come up with an indicator for when you think it will be time for you to get into the market?

Second question. You appear to be focusing only on local real estate opportunities. There have been markets that through the bubble continued to be under priced based on real affordability (Midwest, Upstate NY, the Carolinas). All outside the SF Bay Area. Any thoughts about investing at a distance?

My first two rental properties were in San Jose CA a long time ago. Real estate bargains in the SF Bay Area rarely seem to happen if you want to be a landlord. Your views?

I also invest in London UK. The SF Bay Area does not seem to be all that expensive in comparison.

John Corey- Real estate investor, 20+ years – multiple states and countries.
http://johncorey.wordpress.com/ – advice for real estate investors.

Jon April 3, 2007 at 5:15 am

SAw you on the Carnival or Cities. I agree with your list. A couple to add….

People actually believe that it takes only a a single 60-minute session to “Flip This House”.

People who can’t figure out which end of a paint brush to hold are acting as general contractors when rehabbing older places.

Manshu March 7, 2009 at 2:10 pm

SVB, I didn’t realize you called the real estate bubble so early! Fascinating!

Silicon Valley Blogger March 7, 2009 at 4:33 pm

Hi Manshu!

Well, the real estate market has been pretty insane in the West Coast for some time. I knew way too many people who decided to become real estate agents on their spare time, that I thought — man, this has got to mean something! 😉 Yeah, it just felt like it had to be the peak somehow.

I had young 20-something colleagues buying multiple homes. It was nuts! Anyway, I’m sure many have gone under since their homes were located in Stockton, Sacramento and other areas hard hit by this real estate market. Their hopeful arguments still echo in my ears: “who cares if the homes go down in value? We’re in it for the long term. We’re going to be long term landlords.”

Hmmmm…..somehow the premise of being a landlord this day and age may not seems so appealing anymore.

Columbus October 3, 2010 at 1:20 pm

Hi, this is really a good post though. Hmm, Real state business is now a top business. Do u care about it? Yeah i do. I DO agree with the idea people are living in too big of a house. Do you really need a 6000 sq ft for a house? No. But a 96 sq ft? Come on! It comes a point where all the effort you have to do in order to live that amount of space becomes downright dumb. If you value your time more, you would at least live in a 500-1000 sq ft house. Especially if you have kids! Even the guy when he got married decided to build a 500 sq ft house.

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