U.S. Real Estate Markets at Risk of Housing Bubbles

If you’re a parent, the odds are good that you’ve wished you could wrap your kids in a protective bubble, sealing them off from the dangers of the world. Bubbles might be amazing fun for your children. Not so much for your home value.

A housing bubble is what happens when the demand for housing is greater than the supply of available houses. In certain areas, this drives prices well above the actual value of the home.

Sounds like a good thing, right?

The problem is, these bubbles always burst. When they do, many homeowners get caught in the crossfire with mortgages they can’t get out of and homes they cannot sell.

We thought we learned our lesson in 2007 when the initial bubble burst, and again in 2012. Here we are a few short years later facing similar situations in many markets throughout the U.S., including some that were hard hit in the initial crash.

So, which markets have the most to lose when the next bubble bursts?

It looks like California will take the hardest hit. It’s no wonder. The state has a lot to offer families who choose to call it home. Plus, the high home prices to go along with so many amenities.

According to a recent report appearing in National Mortgage News, four of the top markets for over inflated housing prices are located in The Golden State, including:

  • San Jose (ranked number one on their list)
  • Oakland (claiming fourth place)
  • Los Angeles (ringing in the seventh position)
  • Riverdale (following closely in eighth)

When prices come tumbling down, it might take a while for the local housing markets to rebound and begin inching their way back up, but it will likely happen again in high demand areas like these.

Other areas finishing out the top 10 for U.S. over-inflated home values include the following cities:

  • Seattle, Washington
  • Las Vegas, Nevada
  • Portland, Oregon
  • Denver, Colorado
  • Nashville, TN
  • Fort Worth, Texas

These cities offer some mighty big shoes to fill for other cities hoping to improve home values, but if action isn’t taken quickly, we could be facing yet another nationwide housing crisis.

How Can You Protect Yourself from an Impending Crisis?

There are a few words of wisdom that can help you make wiser buying decisions if you must purchase a home in one of these areas that seem to be potentially hit by a housing bubble and resounding “Pop!” soon.

The goal, of course, is to protect you, your financial future, and your emotional well-being. These great tips will help you avoid much of the pain other buyers may experience when buying into these markets.

  • Skip zero down financing when possible. Failing to come up with a decent down payment places you at greater risk for being able to afford the home. More importantly, it means you’re going into the home with zero equity at prices that are already inflated.
  • Decide your own mortgage budget. Lenders may be willing to lend you more than you think you can afford for a home in a desirable area. But they’re not the ones paying the note and stuck in an undesirable situation when the market crumbles once again.
  • Only buy as a long-term goal. If you don’t plan on being in the home a minimum of five years, now might be a poor time to buy – especially in areas where bubbles loom large.
  • Avoid variable rate financing. It might offer a slightly lower and more attractive interest rate to begin with but going with a fixed rate provides insulation when real estate prices soar, and interest rates rise.

You can’t protect yourself from every possible negative outcome in life. You can, however, avoid feeding the frenzy that creates housing bubbles by biding your time and waiting for more favorable opportunities when possible or by taking the steps above to protect yourself and your investment otherwise.



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