Have you heard stock analysts talk about the real estate "bubble" over the years and perpetuate the myth that this "bubble" would burst? While it does sound like a wonderful fairy tale for someone who hopes to buy a 3 bedroom-2 bath home for $80,000 in Pinebrook Estates or any other nice, middle-class housing subdivision, remember that it is a fairy tale and that real estate is tangible, while stocks, bonds and futures are not. Pinebrook homes, and homes in similar subdivisions sell in the $160,00s, at least. Homes in luxury home subdivisions that used to sell in the $200,000s in the late 1990s now sell for at least double that, although typically for quite a bit more.
The real estate bubble is a myth, just like the Tooth Fairy and Peter Pan. Prices will level off once rates rise to a certain point, but they aren't about to sink back down to 1990 levels, nor will they. The rate increases that are coming, while they may cause rising prices to slow, it's likely that you would still be saving money if you bought that home you've been eyeing, waiting for the false bubble that the media created to burst.
Someone in the media, though, is finally perpetuating the truth about real estate prices and what will happen to them as rates go up. CBS Market Watch talked to Prudential Real Estate Investors. Here's what Youguo Liang, managing director, had to say:
"The housing market has appreciated dramatically over the last five years. People are wondering what is going to happen to the housing market going forward."
In Liang's analysis, along with co-author Richard McLemore, a vice president for Prudential Real Estate Investors, wrote:
"Realistic assumptions...indicate that the national housing market is structurally sound and should, once again, weather the impending rate increases without catastrophe."
Housing appreciation will likely slow once rates go up and prices will likely level off for a period of time. However, the "bubble" won't burst because it doesn't exist.
Find out more at CBS MarketWatch.com (may require registration).