Avoiding the common pitfalls of a housing bubble burst


Nothing stings more than making a long-term investment that can sour as quickly as a bad real estate deal. Worse yet, many of the pitfalls of a housing bubble aren’t on the shoulders of every homeowner yet it hurts homeowners equally. Awareness is your best defence and knowing when to buy or sell can make or break your bank account in the long run.

Market awareness will save your investments

The cardinal rule requires vigilance. It may not always be fun, but watching for tell-tale signs of a slump in the market or an impending bubble burst will always be your first line of defence against an impending economic hit. It is important to note that predicting a bubble precisely will always be nigh-on impossible, but knowing some of the signs that can lead to a downturn in the market will always be a valuable skill.

For starters, the price of homes in your area and how much rent is charged will drive much of the development in your neighbourhood. Specifically, the price-to-rent ratio is a solid indicator of how the local market is developing. Low ratios mean it would be cheaper to buy a home than to rent, while a high ratio means renting is a better option that may be driven by outside speculation. These ratios tend to rise during an impending bubble.

Tracking prices in general often requires tools that are readily available. The Propcast Tool – from TheAdvisory offers a quick overview of the popularity of marketplaces as well as more in-depth information on prices and trends that could help you read the market well ahead of any potential downturns.

Buy in the valley, not during peaks

If you watch the markets closely and plan your approach there’s a very real chance you’ll notice peaks and valleys in house prices over time. As you might expect, buying during a peak is one of the worst things you can do for the long-term value of your investment.

For markets where value fluctuates wildly within a single day, avoiding a purchase before a large drop is difficult at best, else we’d all be much richer than we already are. Thankfully the housing market is much more stable and its rises and falls are slower and easier to predict, though the extent to which they seem likely to drop is always a difficult call to make. The real time to be concerned is when the market flattens and remains consistent after a sharp uptick. Short of a sudden shift in regulation and valuation on the government’s behalf, things are likely to take a downturn. Sometimes intervention can make that downturn even worse.

Keeping an eye on markets and watching government regulations for signs of sudden shake-ups in the real estate sector make for two of the strongest ways to avoid an ill-timed housing purchase. Sometimes it takes more than a cursory glance at the marketplace to infer how political and social shifts may influence prices through the years, but watching for flat lines after sharp rises and impending regulation shifts will always be solid indicators of future change.

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