What causes the real estate market to boom or bust, other than interest rates?

Question

Right now, the real estate market is cooling in most areas, but its caused by interest rates going up. What other factors contribute to a booming or busting market? 10 points to a solid well thought out conclusion.

Answer 1

Well first, in your real eastate if your mama is around there is definately a boom later followed by a bust in her face.

Answer 2

I will agains the grain on this answer and here is the reason why:

Following is an article I wrotte back in November 2005 and this still stands:

(FYI: Speculators GET OUT!! Real true investors/homeowners THERE MIGHT BE SOMETHING HERE!!)

REAL ESTATE MARKET BUBBLE BURST!!!???

Well, we’ve heard so much from so many different “experts” but we ask how many print media columnists does it take to create a Real Estate market bubble? They really can’t but they can sure create fear on the consumer of a bursting housing bubble.

Most media are always looking for ways to increase circulation, which would equal to profits therefore any story suggesting a bursting bubble is going to attract readers. Not that they write this articles for the sole purpose of inducing fear on the consumer but don’t let media stories convince you that a bubble will burst or even worst become a self fulfilling prophecy.

Ultimately, the consumer is the one that dictates if there will be a bubble burst in the Real Estate market.

Three important facts that guide property values are:

Supply vs. Demand: If supply of housing is greater than the demand, housing values will drop. If the supply is less than the demand, housing values will rise.

(In California the supply has increased and demand has diminished therefore it has forced prices to dip)

Employment: This should be a no brainer. Solid and growing employment provides income for down payment and house payments.

Interest rates: This is very powerful driver in creating and sustaining property values. When the rates are reasonable, most people are willing to make important investments like purchasing a home. With lenders now offering easier loan programs to qualify, there are now many people able to purchase a home.

Now, just because lenders have been offering “generous” programs should not encourage people to go out and obtain any type of loan available. Many loans are dangerous and don’t fit with everyone’s lifestyle and economic situation. Many loan agents have been quick to over qualify borrowers and what’s worst not explain completely the pros and cons of each loan program available.

Rates have been creeping up little by little over the past couple of months and are expected to continue to rise a bit more next year as well.

It could be possible the “bubble” will burst but not likely. The Real Estate market will most likely will slow its rapid ascent, level out and maybe dip a bit. But a big burst? I don’t think so.

Nobody can tell what exactly will happen in 2006 with the Real Estate market or the interest rates. What you can do is get informed and protect yourself against a busting of the bubble. You can sure minimize the damage if there was a burst by planning ahead. How well secured are you in your current job? Your income? Have much equity have tied up with loans? Does the equity you have now along with your savings withstand a dip in your home’s value during the time you anticipate to own it?

Don’t stretch your finances by paying a high price for a home just because you’re stubborn and want to have that home.

And one FINAL thought: If you are looking to invest in Real Estate, this might be the best time for you to do it IF AND ONLY IF you are a true investor looking to invest long term. Real Estate is the BEST investment you will ever make in your life!

If you are a speculator/flipper I suggest you dont do anything right now, you will end up loosing money.

Answer 3

The most frequent cause of "bust" cycles is that the market in general realizes that prices are over-inflated and corrects itself. At some point, buyers start looking at the asking prices and say, "That's insane!" They typically tender offers closer to reality. A few owners will be desperate for a sale and will accept these depressed offers just to get a sale. Once these deals are picked up as "comps" or comparable properties used in setting property values the whole house of cards will come tumbling down.

Sometimes this is influenced by the collapse of a market that the area is disproportionately dependent upon. Such was the case in the late 1980s in Texas when the botton fell out of the oil market. Suddenly buyers who had been flush with cash had little to spend and houses stopped selling all together. Sellers panicked and dropped their asking prices. The few buyers left saw asking prices dropping like flies in a cloud of insecticide and tendered offers even lower.

I bought a home in San Antonio, TX in 1990. The listing price was $68,000. I lowballed the seller at $55,000 wanting to see how desperate he really was. We finally settled on $61,500. The property valuation came in at $53,400! He was refusing to sell the property at first but his wife told him that she was leaving whether the house sold or not. We got it for $53,400.00. I reviewed the listing history with the MLS and he had had it on the market a year earlier at $95,400.00. He had turned down an offer of $95,000.00! I'd wager that he regrets that decision to this day. (I just sold it for $104,200.00)

Answer 4

Supply and demand. Where I live, the real estate market is so hot that I can't find a house! When one comes available in my price range, it's usually sold before we can go see it! However, I live in a Katrina ravaged area where many homes and buildings were lost so there's alot more people buying homes than selling, with the exception of damaged or gutted houses which are pretty easy to find.

Answer 5

What drives the real estate market the most, is the rate of interest, and supply and demand, in the market place. Real estate is no different, from any other valuable commodity. The price of gold, oil and pork bellies, fluctuates in much the same way as real estate, for much the same reasons.

Answer 6

Demand, demand, demand! After a natural disaster, like Hurricanes and Earthquakes, so many homes are damaged and people need places to live. When very large businesses open up in areas, like Oil Refineries and Ship Yards, the need for housing rises as well.

Answer 7

Low costs of interest inspired borrowing yet in some unspecified time sooner or later in time you're able to do not forget that duty broadly speaking lies with the consumer & banking establishments. Governments failure became no longer regulating the commercial establishments to insure that the loans banks were providing weren't predatory in nature & that the persons had the potential to re-pay the loans. it really is loopy the banks were allowed to grant persons & couples housing loans that when you do the maths (mortgage, coverage, nutrients prices etc.) that they'd be left with little money to emergencies / different prices. those loans could no longer were approved.

Answer 8

low credit standards...overbuilding, greed, followed by , inflation then credit tightening , interest rates rise, building continues, ARMS kick up, followed by lowered consumer spending recession, foreclosure bad loans, fraud uncovered, deeper recession, illiquidity in homes, bank land sales, defaults, financial chaos, panic selling...and then calm...cycle repeats itself a few generations later..